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 $3,200,000 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: $2,800,000 1,150,000 1,650,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 610,000 640,000 1,250,000 $ 400,000 Click here to view Exhibit 78.1 and Exhibit 7B-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? 36. Would Derrick be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3A Reg 3B Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Net present value Reg 2 > 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 wou require a $3,200,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate 18%. The project would provide net operating income each year for five years as follows: $2,800,000 1,150,000 1,650,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 610,000 640,000 1,250,000 $ 490,000 Click here to view Exhibit 7B-1 and Exhibit 7B-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? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Rea Req 3B 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%.) Simple rate of return % 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 $3,200.000 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: $2,800,000 1,150,000 1,650,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 610,000 640,000 1,250,000 $ 400,000 Click here to view Exhibit 7B-1 and Exhibit 7B-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? Complete this question by entering your answers in the tabs below. Req 1 Reg 2 Reg Reg 3B Would Derrick be inclined to pursue this investment opportunity? Yes No
