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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

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

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:
1.

Compute the project's net present value and the project's simple rate of return. (Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest dollar amount.)

.

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