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 requiring a $3,200,000 investment in equipment with a useful life of five years and no salvage value. Holston Companys discount rate is 18%. The project would provide net operating income each year for five years as follows: Sales $ 2,800,000 Variable expenses 1,150,000 Contribution margin 1,650,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 610,000 Depreciation 640,000 Total fixed expenses 1,250,000 Net operating income $ 400,000 Click here to view Ex

Exercise 14-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO14-2, L014-6] 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 requiring a $3,200,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: Click here to view Exhibit 14B-1 and 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. Compute the project's net present value. Note: Round your final answer to the nearest whole dollar amount. Complete this question by entering your answers in the tabs below. Compute the project's simple rate of return. Note: Round your answer to 1 decimal place i.e. 0.123 should be considered as 12.3%