Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his divisions 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 Companys discount rate is 17%. The project would provide net operating income each year for five years as follows:

Sales		$ 3,500,000
Variable expenses		1,500,000
Contribution margin		2,000,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 690,000
Depreciation	824,000
Total fixed expenses		1,514,000
Net operating income		$ 486,000

Click here to view Exhibit 14B-1 and Exhibit 14B-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.