Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his division's return on Investment (ROI), which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $3,050,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 16%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed. out-of-pocket costs. Depreciation Total fixed expenses $ 2,600,000 1,050,000 1,550,000 $ 600,000 610,000 1,210,000 $340,000 Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: 1. Compute the project's net present value. 2. Compute the project's simple rate of return. 3a. Would the company want Derrick to pursue this investment opportunity? 3b. Would Derrick be inclined to pursue this investment opportunity? EXHIBIT 128-1 Present Value of $1, 1 ((1+r))* Periods 4% 1 5% 0.962 0.952 0.943 0.935 6% 7% 8% 9% 0.926 2 0.925 0.907 0.890 0.873 0.857 3 4 0.855 0.823 0.792 0.763 0.889 0864 0.840 0.816 0.794 0.735 5 0.822 0.784 0.747 0.713 0.681 6 7 8 9 0.361 10 0.322 11 12 13 14 15 0.555 0.481 0417 0.362 0.315 16 17 18 19 20 0456 0377 0.312 21 0.439 0.359 0.294 22 23 24 25 26 27 28 29 30 40 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 21% 23% 24% 25% 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0847 0.840 0.833 0.826 0.820 0813 0.806 0.800 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.683 0.672 0.661 0.650 0,640 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0312 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0516 0.499 0.482 0.467 0451 0437 0.423 0410 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0437 0419 0.402 0.386 0.370 0.355 0.341 0.328 0.790 0.746 0,705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0456 0.432 0410 0.390 0.370 0.352 0.335 0319 0.303 0.289 0.275 0.262 0.760 0.711 0.665 0.623 0.583 0.547 0513 0482 0.452 0.425 0.400 0.376 0354 0333 0314 0.296 0.279 0.263 0.249 0.235 0.222 0210 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0434 0404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.168 0.703 0.645 0.592 0544 0.500 0.460 0.424 0.391 0.333 0.308 0.284 0.263 0.243 0,225 0.209 0.194 0.180 0.167 0.155 0.144 0.134 0.676 0.614 0.558 0.508 0463 0.422 0.386 0.352 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.107 0.650 0.585 0.527 0.475 0429 0.388 0.350 0.317 0.287 0.261 0237 0.215 0,195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.086 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0076 0069 0.601 0530 0.469 0415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.1.30 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 0577 0.505 0442 0.388 0.340 0.299 0.263 0232 0.205 0,181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0062 0.055 0.049 0.044 0.275 0.239 0209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035 0534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 0.042 0.036 0.032 0.028 0513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023 0.494 0416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0018 0475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0020 0017 0014 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.043 0.073 0.061 0.051 0.037 0.031 0.026 0.022 0.019 0016 0.014 0.012 0.242 0.199 0.164 0.135 0.112 0.093 0.077 0.064 0.037 0.053 0.044 0.068 0.422 0342 0.278 0.226 0.184 0.150 0.123 0.101 0.083 0.026 0.022 0.056 0.046 0.038 0.032 0406 0.326 0.262 0211 0.170 0.138 0.112 0091 0.074 0.060 0.049 0.040 0.033 0027 0.022 0.018 0015 0012 0.010 0.009 0007 0.006 0.390 0310 0.247 0.197 0.158 0.126 0.102 0082 0066 0.053 0.043 0.035 0.028 0.023 0019 0015 0013 0.010 0.008 0.007 0.006 0.005 0.146 0.038 0.116 0.092 0.074 0.059 0.047 0.375 0.295 0.233 0.184 0.020 0.030 0.024 0.016 0.013 0.010 0.009 0.007 0.006 0.005 0.004 0.361 0.281 0.220 0.172 0.135 0.106 0.084 0066 0.053 0.042 0.033 0.026 0.021 0.017 0014 0011 0.009 0.007 0.006 0.005 0004 0.003 0.347 0.268 0207 0.161 0.125 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.333 0.255 0.150 0.116 0.090 0.069 0.054 0.042 0.196 0.006 0.033 0.026 0.020 0.016 0.012 0.010 0.008 0.005 0.004 0.003 0.002 0.002 0321 0243 0.185 0.141 0.107 0.082 0.063 0.048 0.037 0.029 0.022 0.017 0014 0.011 0.008 0.002 0.002 0.006 0.005 0.004 0.003 0.002 0007 0.308 0.231 0.174 0.131 0.099 0.075 0.057 0.044 0.033 0.026 0005 0.003 0.002 0.002 0.001 0.004 0.003 0.001 0.001 0.001 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.000 0.000 0.000 0.000 0.000 0.031 0.026 0.022 0.018 0.015 0013 0011 0.009 0.018 0.015 0.013 0.011 0.009 0.007 0.020 0.015 0.012 0.009 0.005 0.004 0.003 0.002 EXHIBIT 128-2 Present Value of an Annuity of $1 in Arrears 1/(1-(1/(1+r)^n)) Periods 4% 1 5% 0.962 0.952 2 1886 1859 3 2.775 2.723 4 3 6 5.242 5076 4917 6% 7% 89 0.943 0.935 0.926 1.833 1808 1.783 2.673 2.624 2.577 3.630 3546 3465 3387 3312 4452 4.329 4212 4.100 3.993 4.767 4.623 95 7 6002 5.766 5.582 8 " 10 11 12 13 14 15 16 17 IN 19 20 21 22 23 24 25 26 27 28 10% 11% 12% 13% 14% 15% 16% 17% 18% 21% 22% 0917 24% 25% 0909 0.901 0.893 0885 0.877 0870 0.862 0.855 0.847 0.840 0.833 0.826 0.820 0813 | 0.806 1.759 1.736 1.713 1.690 0.800 1.668 1.647 1626 1.605 1585 1566 1547 1528 2531 1474 1457 1440 2.487 2.444 2.402 2.361 2.322 2283 2.246 2.210 2.174 2140 2.106 2.074 2042 2011 1981 1952 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 2.540 2.494 2448 2.404 2.362 3.890 3,791 3696 3.605 3517 3433 3352 3.274 3.199 3.127 3058 2.991 2.926 2.864 2.803 2.745 2.689 4.486 4.355 4.231 4311 3.998 3389 3.784 3685 3.589 3.498 3.410 3.326 3.245 5.389 5.206 3.167 3.092 3.020 2.951 5.033 4.868 4.712 4564 4423 4.288 4.160 4.039 3.922 3812 3.706 3.605 3508 6.733 6463 6210 5971 5.747 3416 3.327 3.242 3.161 5.535 5335 5.146 4.968 4.799 4.639 4.487 4344 4.207 4078 3.954 3.837 3.726 3619 3518 3421 3329 7435 7.108 6.802 6515 6.247 5.995 5.759 5.537 5328 5.132 4.946 4.772 4.607 4451 4.303 4.163 4031 3.905 8.111 7.722 7.360 3.786 3673 3.566 7024 6.710 3.463 6418 6.145 5389 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4339 4.192 4.054 3.923 3.799 8.760 8.306 7.887 7499 7.139 6305 3.682 3571 6.495 6.207 5.938 5687 5.453 5.234 5029 4.836 4.656 4.46 4327 4.177 9385 8863 8384 7.943 7.536 7.161 6.814 6.492 6.194 5918 4.035 3902 5.660 5421 5.197 4.988 4793 4.611 4.439 4.278 4.127 3.985 9.986 9394 8853 8358 7.904 3.851 3.725 7487 7.103 6.750 6424 6.122 5842 5583 5342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780 10.363 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6628 6302 6.002 5.724 5.468 5.229 5.00% 4.802 4.611 4432 4265 4.108 11.118 10.380 9.712 9.108 3962 3.824 8.559 8.061 7.606 7.191 6.811 6462 6.142 5847 5.575 5324 5092 4376 4.675 4489 4315 4153 11.652 10838 10.106 9447 4001 3.859 K8S1 8313 7.824 7379 6974 6.604 6.265 5.954 5.668 5.405 5.162 4938 4.730 4.536 4.357 4.189 4033 12.166 11.274 10.477 9.763 9.122 544 8.022 7549 7.120 6.729 6373 6047 5.749 5.475 3.887 5.222 4990 4.775 4.576 4.391 4219 4059 3910 12.659 11.690 10.825 10.059 9372 8.7568.201 7.702 7.250 6840 6467 6.128 5818 5.534 5.273 5033 4812 4.608 4.419 4.243 4080 3.928 13.134 12 085 11.158 10.336 9.604 8.950 8.365 7.839 7366 6938 6550 6.198 5.877 5.584 5316 5.070 4843 4635 4.442 4263 4097 3.942 13.590 12.462 11.470 10.594 9818 9.129 514 7963 7.469 7025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4657 4.460 4279 14.029 12821 11.764 10.836 10.017 9292 8649 8075 7562 7.102 6687 4.110 3954 6312 5973 5665 5.384 5.127 4.39) 4675 4476 4.292 4.121 3960 14451 13.163 12.042 11.061 10.201 9.442 8.772 8.176 7645 14.857 13489 12.303 11.272 10371 9.380 88838.266 7.718 4.302 4.130 3970 7.230 6.792 6.399 6044 5.723 5432 5.167 4925 4.703 4499 4311 4.137 3976 15247 13.799 12.550 11.469 10529 9.707 985 8.348 7.784 7.283 6335 6434 6073 5.746 5451 5.182 4937 4713 4507 15.622 14.094 12.783 11654 10 675 9323 9077 6422 7.843 7330 687) 6.464 6097 5.766 5.467 5.195 4.948 4721 4314 4523 4.147 15.983 14.375 13.005 1826 10810 9929 9161 8488 7.96 7372 6906 6.491 6.118 5.783 5.480 5.206 4956 4.728 4520 4328 4.151 3.988 16.330 14.643 13.211 11987 10.935 10.027 9.237 8548 7543 7409 6.935 6314 6136 5.798 5.492 5215 4964 4734 4324 4332 4.154 3990 1666) 14.898 13406 12.137 11.051 10.116 9.307 19% 20% 23% 1509 1492 3.776 3.656 7.170 6.743 6359 6011 5696 5410 5.149 4909 4.600 4418 4318 414 3981 3985 29 30 40 16984 15.141 13591 12.278 11.158 10.198 9370 17.392 15372 13.765 12.409 11 258 10 274 9427 19.793 17.159 15 046 13332 11 925 10.757 K 022 7470 696) 6551 6.166 5820 5.510 5229 4.975 4943 4331 4337 4159 3994 055 7496 7000 6.566 6.177 5829 5517 5235 4979 4746 4334 4339 4.160 3.995 9.779 951 8.344 7634 7.105 6.642 6.233 5871 5548 5.258 4997 4.760 4544 4.347 4.166 3999 8.602 7984 7441 6.961 6534 6.152 5.810 5.502 5223 4.970 4739 4526 4335 4.137 3992 650