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: $2,600,000 1,050,000 1,550,000 Sales Variable expenses Contribution margin Fixed expenses Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income 600,000 610,000 1,210,000 $ 340,000 Click here to view Exhibit 148-1 and Exhibit 4B-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? EXHIBIT 145-1 Present Value of States 20% 0.156 Periods 73 8 9% 10% THX 12 33 146 152 16% 17 188 193 21 223 23 249 255 1 0.962 0.952 0.943 0.935 0.926 0917 0.909 0.901 0893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0833 0.826 08200.813 0.806 0.800 2 0925 0.907 0990 0.873 0.857 0.842 0.826 0.812 0.797 0783 0.769 0.750 0.743 0.731 0.718 0.706 0.694 0.683 0.672 0.661 0.650 0.640 3 0.8890.866 0.840 0.816 0.794 0772 07510731 0.712 0.693 0.6750658 0641 0624 0.609 0.593 0.579 0564 0.551 0.537 0.524 0.512 0.855 0.83 0.7920763 0.735 0700 0.683 0659 0.636 0613 0.592 0.572 0.552 0534 0.516 0.499 0482 0.467 0.451 0.437 0.423 0.410 5 0822 0794 07470713 0.6810650 0.621 0593 0567 0543 0.519 0.497 0.476 0.456 0.637 04190.402 0.396 0.370 0.355 0.341 0328 6 0790 0746 0.705 0666 0.630 0.595 0564 0535 0.507 0.480 0.456 0.432 0.410 0.390 0370 0.352 0.335 0.319 0.303 0.29 0.275 0.262 7 0.750 0.711 0665 0.623 0.583 0547 0.53 0.492 0.452 0425 0.400 0.375 0.354 0333 0.314 0296 0279 0263 0.249 0.2350222 0.210 0731 0.677 0.627 0.582 0540 0.502 0.467 0.4340404 0376 0.351 0.327 0.305 0.285 0.266 0.249 0.23 0.218 0.204 0.191 0.179 0168 9 0703 0.045 0.592 0.544 05000 450 0.424 0.391 0.361 0.333 03080284 0.263 0243 0225 0209 0.194 01500167 0155 0144 0134 10 0.670 0614 0.558 0.500 0.463 0422 0.386 0352 0322 0.295 0.270 0.247 0.227 0208 0.191 0:176 0.1620149 0137 0126 0.107 11 0.650 0.505 0527 0.475 0.429 0388 0.750 0.317 0287 0.261 0.237 0.215 0.195 0.178 0162 0.18 0.35 0.123 0.112 0103 0.094 0.006 12 0.625 0.557 0.497 0.444 0.397 0.356 0319 0286 0.257 0231 0.208 0.187 0163 0.152 0137 0124 01120102 0.092 0.003 0.076 0.069 0.001 0.530 0.469 0.45 0.368 0325 0.290 0.258 0229 0.2040182 0163 0 145 0130 0716 01040093 0.014 0.075 0060 0001 0.055 14 0.577 0.505 04420380 0.340 0299 0.263 0.232 0205 0.181 016003410125 0.111 0.099 0.000 0.00 0.069 0062 0055 0.049 0.044 15 0.556 0.401 04170362 0.315 0275 0230 0209 0183 0100 01001230108 0.095 0.064 0.074 0065 0057 0051004500000035 16 0.534 0.458 0794 0.3390292 0252 0.21801880163 01 0123 01070093 0.081 007 0062 0.054 0.047 0.042 0036 0032 0.028 17 050) 0.46 0.37 03170270 0231 0198 017006 0125 000 0093 0000 0000 0060 0,052 0045 0.039 0.034 0030 0.026 0023 18 0.44 0.4160350 0.296 0.250 0212 080 0150 000 0.095 0001 0000 0.050 0.051 004 0030 0.032 0.028 0.024 0.021 0.018 10 0475 0.396 02010277 0232 0194 0164 0038 0.116 0.098 0.003 00700060 0.051 0.04 0.037 0.031 0027 0.02 0.02000170,014 20 0.456 037203120258 0.215 0.178 0549 0124 0104 0.087 007300010051 0.043 0.037 0.031 0.025 0.022 0.019 0.0% 0.010012 21 04090359 0.294 0242 0199 0154 015 0112 0.093 00770061 0.053 004 0.037 002 0.025 0.022 0.01 0.015 0.013 0011 0.009 22 0472 0.342 02780226 0134 015001230101 0.000 0.008 0.056 0046 0038 0.032 0.026 0022 0.018 00150013 0011 23 0.0090007 0.4060.326 0.262 0.21 0170 00380112 0.0910074 0.060 0.049 0.0400033 0.027 0022 0.018 0,015 0,012 0.010 0.00 0.007 0.006 24 0390 0.310 0.2470197 0:15801260102 0.002 0.006 0.053 0043 0.035 0.028 0023 0.019 0.015 0.03 0.00 0.008 0.007 0.006 0.005 0.375 0295 02330184 0146 0.116 0.092 0.074 0059 0.047 0030 0.030 0.024 0.020 0010 0013 0010 0.00 0.007 0.006 0.005 0.004 20 0.361020102200172 0135 0306 0084 0.066 0.05 0.042 0033 0.026 0.021 0.017 0.054 0.01 0.000 0.007 0.006 0005 0.00 0.003 0.37 0.268 0207 0.361 0.125 0.098 0.078 0.060 0047 0037 0.029 0023 0.058 0010011 0.009 0.007 0.008 0.005 0.00 0.0000002 20 0333 0.255 0196 0150 0.116 0090 0.009 0.054 0012 0.033 0.025 0.020 0:096 0.012 0010 0.008 0.006 0.005 0004 0.003 0.002 0.002 29 0.321 0243 09850541 097 0.002 0.063 0.048 0.037 00290022 0.017 0.014 0.01 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 30 03000231 0.17611 0090 0.075 0.057 0.04 0.033 0.026 0.020 0,015 0,012 0.009 0.007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 02080142 0097 0.067 0.046 0032 0.022 0.015 0.01 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 10 N DHIBIT 548-2 Present Value of an Annuity of $1 in Arruar: 7887 Periods 05 S 9% 10% 11% 12 138 144 153 17 195 20% 215 22 23% 24 1 25% 0.962 0.952 0.943 0935 0.926 0917 0.909 0.901 0.893 0.885 0877 0.870 0962 0.855 0.847 0.840 0.833 0.826 0.820 0.313 0.805 0800 2 1896 1859 1833 1808 1783 1759 1736 173 1690 1668 1647 1626 1605 158515661547 1528 1509 1492 1674 1.457 3 2775 1460 2723 2673 2624 2577 2531 2487 2.444 2402 2361 2.322 2283 2246 2.210 2174 2140 2.106 2074 2042 2011 1981 1952 4 3630 3546 3.465 3.387 3.312 3.240 3.170 3102 3037 29742914 2855 2798 2743 2690 2639 2589 2540 2494 2448 2404 2362 5 4.452 4329 4.212 4100 3993 3.890 3.791 3.696 3605 357 3.433 3352 3.274 3199 3127 3058 2.991 2926 2954 2.803 2745 2689 5 5.242 5076 4.917 4.767 4623 4.486 4355 4.231 4111 3.998 3.889 3784 365 3.589 3.498 3410 3326 3245 3.167 3.092 3.020 2951 7 6.002 5786 5582 5.389 5.205 5033 4.868 4712 4564 4423 4288 4950 4039 3.922 3812 37063605 3.508 347 3327 3.242 3161 8 6.735 6.463 6.210 5.971 5747 5535 5.335 5146 4.963 4.7994639 4487 4344 4207 4078 3.954 3.837 3.726 3.619 3.518 3421 3.329 9 7435 7308 6.802 6.515 6.247 5.995 5759 5.537 5328 5132 4.946 4772 4607 4.451 4.303 4163 4031 3905 3.786 3.673 3566 3.463 10 8:111 7722 7360 2024 6.710 6.418 6.145 5.889 5650 5.426 5216 5019 4833 4659 4494 43394192 4.054 3923 3.7993682 3.571 11 3.760 8.306 7499 7139 6.805 6.495 6.207 5938 5.6875453 5234 5029 4836 4656 4486 4327 4.177 4035 3.902 3.776 3656 12 9385 8.883 8384 7940 7536 7161 6.814 6.492 6194 5918 5.660 5.421 5197 4.988 47934611 443942734127 3985 3,851 3725 13 9.986 9.394 2.853 8350 7904 7487 7503 6.750 6.424 6.122 5.842 5.583 5.342 5118 4.910 4715 45364362 4203 4053 3.9123780 14 10.563 9.899 9.295 8.745 8.244 7736 7.367 6982 6.628 6302 6.002 5724 5.468 5.2295.000 4.802 4611 4432 4.265 4108 3962 3824 15 10.380 9.712 9.100 8.550 8061 76067191 6.811 692 6.142 5.847 5.575 5.324 5092 4.376 4.675 4.489 4.215 4153 4001 3.659 16 11652 10,833 90105 9.447 8.851 8.33 7824 7379 6974 6604 6.205 5.954 5668 5.40558824938 4730 4.536 4357 418940332.887 2356 11.274 10.477 9763 9.122 8.544 8.022 7549 2120 6.729 6.373 6047 5749 5.475 5222 4990 4775 4.5754391 4.219 40593990 13 12659 1690 10.82810059 9372 8.756 8.201 270272506840 6.467 6128 5.818 5 534 5.273 5.033 4812 46084419 4.243 4.080 1920 19 13.134 2085 11158 10.336 9.604 8.950 8365 783973666.938 6550 6.1985.877 5584 5.316 5.070 4.8434635 4.442 4.263 4097 3.942 20 13.590 12.452 1470 10.594 9818 9129 8.554 7963 7409 7025 6623 6.259 5.9295628 5353 5101 4870 4657 4460422940 3954 21 14.029 12.521 1764 10 B36100179292 8649 8.075 7562 2902 6.687 6.3125.9735.665 5384 51274891 4675 4076 4292 4121 3.963 22 14.451 13.563 12.042 1061 10.201 9.442 87728.176 7645 2170 6736.3596.011 5.696 5.410 5149 4.909 4600 4488 4302 4130 3970 14.05 3.409 12.303 11272 10371 9.500 8.883 8.266 7319 7.230 67926799 6044 57235.432 5167 4.925 47034499 4311 3.976 24 15 247 13.799 12.550 11469 10.529 9.707 8.955 8348 2734 7283 6.835 6.4346.073 57665451 5132 4.937 473 4507 4358 4143 2981 25 15.622 14.094 12783 1654 10,675 9823 907784227843 7330 5.873 6.464 6.097 5.786 5467 51954948 4721 4514 4322 4147 3.985 26 5983 14.375 13.003 11.826 10.810 9.929 9.961 8.488 7896 7372 6.906 6/4916118 5.73 5.480 52064956 4728 4520 43284151 3.988 16.300 14.640 2.211 1987 10 935 10.027 9.237 8.5487943 7409 6.935 654 6136 5.790 5492 5215 4964 4734 4.524 43324154 3.990 18.663 1489813405 1207 1051 10116 9.3078602 7984 7441 6.961 6.534 6152 5.810 5.502 5223 4 970 4759 4520 4235 4157 3.992 29 15.964 15541 13591 12.271111150 10198 9.370 650 3.022 7470 6.983 5551 5556 5.820 5.510 5229 4975 47434531 43374159 3.994 30 77.292 15372 13.785 12.409 1125890.2749.427 8.694 8.055 7496 7003 6.566 6.177 5.829 5.517 5.23549794746 45344339 4550 1995 20 15.79312159 15:04 1732 1192510.757 9779.951 1244 7634 2105 6.642 6233 58715.5485258 499747604541 4347 4166 3.999 P