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 $3,800,000 investment in equipment with a useful life of five years and no salvage value. Holston Companys discount rate is 16%. The project would provide net operating income each year for five years as follows:

Sales		$	3,200,000
Variable expenses			1,350,000
Contribution margin			1,850,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$670,000
Depreciation	670,000
Total fixed expenses			1,340,000
Net operating income		$	510,000

Use Excel or a financial calculator to solve.

Required:

1.	Compute the project's net present value to the nearest dollar.

2.	Compute the project's simple rate of return. (Round your answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.)

3-a.

Would the company want Derrick to pursue this investment opportunity?

	Yes
	No

3-b.

Would Derrick be inclined to pursue this investment opportunity?

	Yes
	No