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 $4,120,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 17%. The project would provide net operating income each year for five years as follows:

Sales$3,500,000Variable expenses1,500,000Contribution margin2,000,000Fixed expenses:Advertising, salaries, and other fixed

out-of-pocket costs$690,000Depreciation824,000Total fixed expenses1,514,000Net operating income$486,000

Click here to viewExhibit 12B-1andExhibit 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?