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:

$$2,600,0001,050,0001,550,000$

Advertising, salaries, and other fixed out$-$of$-$

pocket costs $$600,000$

Depreciation $,610,000$

Total fixed expenses

Net operating income

Click here to view Exhibit $14$B$-1$ and Exhibit $14$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

Compute the project's net present value.

Compute the project's simple rate of return.

$3$a$.$ Would the company want Derrick to pursue this investment opportunity?

$3$b$.$ Would Derrick be inclined to pursue this investment opportunity?