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 $3,000,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 15%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: of-pocket costs $ 2,500,000 1,000,000 1,500,000 Advertising, salaries, and other fixed out- $ 600,000 600,000 1,200,000 $ 300,000 Depreciation Total fixed expenses 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? Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Net present value Red 1 Req 2 > Compute the project's simple rate of return. Simple rate of return % Would the company want Derrick to pursue this investment opportunity? OY ONO Yes Would Derrick be inclined to pursue this investment opportunity? O Yes ONO EXHIBIT 12B-1 Present Value of $1; 1 (1+r)n Periods 4% 1 0.962 2 0.925 5% 0.952 0.907 6% 7% 3 0.889 4 0.855 0.792 0.943 0.935 0.873 0.890 0.864 0.840 0.816 0.823 8% 0.926 9% 0.763 0.857 0.794 0.735 0.708 0.917 0.909 0.842 0.772 0.751 0.683 10% 11% 0.901 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.893 0.885 0.870 0.877 0.862 0.855 0.826 0.812 0.797 5 0.822 0.784 0.747 0.713 0.681 0.650 0.621 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 7 0.760 0.711 8 0.731 0.677 9 0.703 0.645 10 0.676 0.614 11 0.650 0.558 0.585 0.527 12 0.625 13 14 0.577 0.442 0.505 0.665 0.623 0.583 0.547 0.513 0.627 0.582 0.540 0.502 0.592 0.544 0.500 0.460 0.463 0.508 0.422 0.475 0.429 0.388 0.557 0.497 0.444 0.397 0.601 0.530 0.469 0.415 0.368 0.388 0.535 0.482 0.467 0.434 0.391 0.424 0.386 0.333 0.352 0.322 0.295 0.350 0.317 0.287 0.261 0.237 0.731 0.783 0.769 0.756 0.743 0.731 0.712 0.693 0.641 0.624 0.675 0.658 0.659 0.534 0.636 0.613 0.592 0.572 0.552 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.507 0.480 0.456 0.390 0.370 0.432 0.410 0.452 0.425 0.400 0.333 0.376 0.354 0.314 0.404 0.376 0.285 0.266 0.351 0.327 0.305 0.361 0.263 0.243 0.308 0.225 0.284 0.227 0.208 0.215 0.195 0.706 0.694 0.609 0.593 0.579 0.564 0.847 0.840 0.833 0.826 0.718 0.820 0.813 0.806 0.800 0.683 0.672 0.661 0.650 0.640 0.551 0.537 0.524 0.512 0.516 0.499 0.482 0.467 0.451 0.437 0.419 0.402 0.386 0.437 0.410 0.370 0.355 0.341 0.328 0.423 0.352 0.335 0.319 0.303 0.289 0.275 0.262 0.296 0.279 0.263 0.249 0.235 0.222 0.210 0.249 0.233 0.218 0.204 0.191 0.179 0.168 0.209 0.194 0.180 0.167 0.155 0.144 0.134 0.270 0.247 0.191 0.176 0.162 0.149 0.137 0.126 0.116 0.107 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.086 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 0.076 0.069 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044 15 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.045 0.051 0.040 0.035 16 0.534 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 17 0.513 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 18 0.494 19 0.475 0.396 0.416 0.350 0.331 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 0.018 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 0.020 0.017 0.014 20 0.456 0.377 0.312 0.258 21 0.439 0.359 22 0.422 23 0.406 0.326 0.342 0.278 0.262 0.294 0.242 0.199 0.226 0.184 0.211 0.170 0.215 0.178 0.164 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014 0.012 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022 0.018 0.015 0.013 0.011 0.009 0.123 0.150 0.138 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.015 0.013 0.011 0.009 0.007 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 24 0.390 0.310 0.247 0.197 0.158 0.126 0.102 0.082 0.066 0.053 0.043 0.035 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.047 0.059 26 0.361 0.281 0.220 0.172 0.135 0.106 0.084 27 0.347 0.268 0.207 0.161 0.125 0.098 0.076 28 0.333 0.255 0.196 0.150 0.116 0.090 0.069 0.060 0.054 0.042 0.066 0.053 0.047 0.042 0.033 0.038 0.030 0.026 0.028 0.023 0.019 0.024 0.020 0.016 0.015 0.018 0.012 0.015 0.013 0.010 0.013 0.010 0.010 0.009 0.007 0.006 0.008 0.007 0.006 0.005 0.009 0.007 0.006 0.005 0.004 0.021 0.017 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.029 0.023 0.018 0.020 0.016 29 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0.048 0.037 0.029 30 0.308 0.231 0.174 0.131 0.099 0.075 40 0.208 0.142 0.097 0.067 0.046 0.032 0.057 0.022 0.033 0.044 0.015 0.011 0.026 0.008 0.037 0.033 0.026 0.022 0.017 0.014 0.011 0.012 0.009 0.020 0.015 0.007 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.014 0.011 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.012 0.010 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.008 0.006 0.005 0.004 0.003 0.005 0.004 0.003 0.003 0.000 0.000 0.002 0.002 0.002 0.001 0.002 0.002 0.000 0.000 0.000 EXHIBIT 12B-2 Present Value of an Annuity of $1 in Arrears; 1/r(1-(1/(1+r)^n)) Periods 4% 1 2 5% 6% 0.962 0.952 0.943 1.886 1.859 1.833 3 7% 8% 0.935 0.926 1.808 1.783 2.775 2.723 2.673 2.624 2.577 4 3.630 3.546 3.465 3.387 3.312 5 4.452 4.329 4.212 4.100 3.993 6 5.242 5.076 7 4.917 6.002 5.786 5.582 S 6.733 9 10 8.111 7.722 7.360 7.024 11 8.760 8.306 7.887 7.499 12 9.385 8.863 8.384 7.943 7.536 13 9.986 9.394. 8.853 8.358 14 10.563 9.899 9.295 8.745 15 11.118 10.380 9.712 9.108 16 11.652 10.838 10.106 9.447 17 18 19 20 13.590 12.462 11.470 10.594 9.818 9.129 21 14.029 12.821 11.764 10.836 10.017 22 23 24 25 26 27 28 29 30 40 9.292 14.451 13.163 12.042 11.061 10.201 9.442 14.857 13.489 12.303 11.272 10.371 9.580 15.247 13.799 12.550 11.469 10.529 9.707 15.622 14.094 12.783 11.654 10.675 9.823 9.077 15.983 14.375 13.003 11.826 10.810 9.929 9.161 16.330 14.643 13.211 11.987 10.935 10.027 9.237 16.663 14.898 13.406 12.137 11.051 10.116 9.307 16.984 15.141 13.591 12.278 11.158 10.198 9.370 17.292 15.372 13.765 12.409 11.258 10.274 9.427 19.793 17.159 15.046 13.332 11.925 10.757 9.779 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1.952 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 2.448 2.404 2.362 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2.926 2.864 2.803 2.745 2.689 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 3.726 3.619 3.518 3.421 3.329 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 4.362 4.203 4.053 3.912 3.780 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 4.432 4.265 4.108 3.962 3.824 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 4.489 4.315 4.153 4.001 3.859 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.033 3.887 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775 4.576 4.391 4.219 4.059 3.910 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812 4.608 4.419 4.243 4.080 3.928 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843 4.635 4.442 4.263 4.097 3.942 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870 4.657 4.460 4.279 4.110 3.954 8.649 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 8.772 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909 4.690 4.488 4.302 4.130 3.970 8.883 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137 3.976 8.985 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937 4.713 4.507 4.318 4.143 3.981 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.147 3.985 8.488 7.896 7.372 6.906 6.491 6.118 5.783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 8.548 7.943 7.409 6.935 6.514 6.136 5.798 5.492 5.215 4.964 4.734 4.524 4.332 4.154 3.990 8.602 7.984 7.441 6.961 6.534 6.152 5.810 5.502 5.223 4.970 4.739 4.528 4.335 4.157 3.992 8.650 8.022 7.470 6.983 6.551 6.166 5.820 5.510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 8.694 8.055 7.496 7.003 6.566 6.177 5.829 5.517 5.235 4.979. 4.746 4.534 4.339 4.160 3.995 8.951 8.244 7.634 7.105 6.642 6.233 5.871 5.548 5.258 4.997 4.760 4.544 4.347 4.166 3.999 20% 21% 22% 0.833 0.826 0.820 1.528 1.509 1.492 23% 24% 25% 0.813 0.806 0.800 1.474 1.457 1.440 3.682 3.571