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 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,150,000 investment in equipment with a useful life of five years and no salvage value. Holston Companys discount rate is 17%. The project would provide net operating income each year for five years as follows:

Sales $4,300,000

Variable expenses 1,900,000

Contribution margin 2,400,000

Fixed expenses:

Advertising, salaries, and other fixed out-of-pocket costs$765,000

Depreciation765,000

Total fixed expenses 1,530,000

Net operating income $870,000

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

1.

Compute the project's net present value.

net present value

2.	Compute the project's simple rate of return. simple rate of return percent