Exercise 12-9 Net Present Value Analysis and Simple Rate of Return [LO12-2, LO12-6) 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 that would require a $3.560.000 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: $3,000,000 1.750,000 Sales Variable expenses Contribution margin Fixed expensest Advertising. salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Niet operating income $ 650.000 1.362.B $ 385.00 Click here to view Exhibit 128-1 and Exhibit 128-2. 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 Reg 3A Req 38 Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Net present value Reg 2 > EXHIBIT 128-1 Present Value of State Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 20% 25% 1 0962 0952 0943 0.935 0.926 0917 0909 0901 0893 0.885 0877 0.870 0862 0855 0842 0840 0.833 0.826 0820 0.813 0.806 0800 2 0925 0907 0.890 0.873 0857 0842 0826 0812 0797 0.783 0769 07560743 0731 0718 0.706 0.694 0.683 0672 0661 0650 0.640 3 0889 0864 0.840 0.816 0.794 072 0751 0731 07120693 0.675 0.658 0641 0624 06090593 0579 0.564 0.551 0.537 0524 0512 4 0855 0823 07920763 0735 0708 0683 0659 0636 0613 0.592 0.572 0552 0534 0516 0.499 0482 04670451 0437 0423 0.410 5 0822 0784 0747 073 0.681 0650 0621 0593 0567 0543 0.519 0497 0.476 0456 0431 0419 0.402 0.386 0.370 0355 0341 0328 6 0.790 0746 0705 0656 0630 0596 0554 0535 0507 0480 0.456 0432 0410 0390 0370 0352 0335 0.319 0.303 0289 0275 0262 7 0760 070665 0623 0583 0547 053 0482 0452 0425 0.400 0376 0354 0333 034 0296 0279 0263 0249 0.235 022 0210 8 0731 0677 0627 0582 0540 0502 0457 0034 0404 0376 0.351 0.327 0.305 0285 0266 0249 0233 0218 0204 0191 0179 0158 0.703 0645 0592 054 0500 0460 0.424 0391 0361 0333 0308 0284 0263 0203 0225 0209 0194 01800167 0155 014 0134 10 0676 06140558 0.508 0.463 0422 0.386 0352 0322 0295 0270 0247 0227 0208 0191 0176 01620149 0137 0126 0116 0107 11 0650 0.585 0527 0.475 0.429 0388 0350 0.317 0287 0.261 0237 0215 0195 0178 0162 0148 0135 0123 0.112 003 0094 0086 120625 0557 0.497 0.444 0.397 0.356 0319 0286 0257 0231 0208 01870168 0152 0137 0124 0.112 0102 0092 0083 0076 0069 13 0601 0530 0.469 0.415 0368 0.326 0 290 0258 0229 0 204 0.182 0163 0145 0130 0116 0104 0.093 0084 0.075 0.068 0061 0055 0.577 0505 0442 0.388 0340 0299 0263 0232 0205 0.181 0.160 0141 01250111 0099 0.088 0.078 0069 0062 0055 0049 0.044 15 0555 0.481 0417 0.362 0315 0275 0.239 0209 0183 0160 0.140 0123 0108 0095 0084 0074 0.065 0057 0.051 0045 0040 0035 16 0534 0.458 0394 0339 0292 0252 021801880163 0141 0123 01070093 0081 00710062 0054 0047 0042 0036 0032 0028 17 05130436 0371 03170270 0231 0198 0170 016 0125 0108 0093 0080 0069 00600052 0045 0039 0034 0030 0026 0.023 18 0.494 0.4160350 0296 0250 0212 01800153 013001110095 0081 0069 0059 0051 0044 0038 0032 0028 0024 0021 0018 19 0475 0.396 0331 0277 0232 0194 0164 0138 016 0098 0.083 007000600051 0013 0037 0031 0027 0023 0020 0011 001 200456 0377 0312 0258 0215 0178 019 0124 0904 0087 0073 0061 0051 0043 0037 0031 0026 0.022 0019 001 002 0012 21 0439 0359 0294 0242 0199 0154013501120093 0077 0064 0053 004 0037 0031 0026 0.022 0018 0010010011 0009 22 0.422 0342 0278 0226 0184 0150 0123 01010083 0068 0056 0046 0038 00320026 0022 0018 0.01 0.03 001 0009 0.007 23 0406 0326 0262 0211 01700138 011200910074 0.060 0049 0040 0033 0027 0022 0018 0.01 0.012 0010 0009 0007 0.006 24 0.390 0310 0247 0.197 0158 0126 0102 0082 0066 0.053 0.043 0035 0028 0023 0019 0015 0.013 0010 0008 0.007 0006 0.005 25 0.375 0295 0233 0.184 0146 01160092 0074 0059 0047 0.038 0030 0024 0.020 0016 003 0010 0009 0.007 0006 0005 0004 26 0.361 0281 0220 0172 0135 0106 0084 0066 0053 0.042 0.033 0.026 0021 001 0010011 0009 0007 0.006 0005 0004 0.003 27 0347 0268 0207 0.161 0.125 0098 0076 0060 0047 0.037 0.029 0023 0018 004 0011 0.009 0.007 0.006 0.005 0004 0003 0002 28 0.333 0255 0196 0150 0116 0090 0.069 0054 0.042 0.033 0026 0020 0016 0012 0010 0.008 0.006 0.005 0.004 0003 0.002 0.002 29 0.321 02430185 0141 0807 0082 0.063 0048 0037 0029 0.022 0.017 0.054 0011 0008 0.006 0.005 0.004 0003 0002 0.002 0.002 30 0.308 0231 01740131 0.099 0075 0057 0044 0033 0.025 0.020 0,015 0012 0009 0007 0005 0.004 0.003 0003 0002 0.002 0.001 40 0208 0342 0097 0067 0046 0032 0022 0.015 001 0.008 0.005 0.004 0003 0002 0001 0.001 0.001 0.000 0000 0000 0000 0000 EXHIBIT 120-2 Present Value of an Annuity of $1 in Arrears: 1 08 Periods 5% 6% 7 8% 9% 195 205 215 226 227 26 25% 1 0962 0952 093 09350926 0907 0909 0901 0847 0840 033 0826 0820 083 0806 0800 2 1886 1859 1833 1808 178 1759 1736 173 1690 1668 160 1626 1605 155 156 157 158 1509 1492 144 1457 1440 3 2775 2723 2673 2624 25712531 2487 244 2402 2351 2322 2283 2246 2210 2114 210 2106 2014 2012 2011 1581 1952 4 3630 354634653387 3312 3240 310 3102 3037 2974 2914 2855 2798 2143 2690 2609 2589 2500 2494 2468 2 404 2362 4452 4329421241003993 3890 3.791 3696 3605 3.517 3433 3352 32M 3199 3121 3058 291 2926 2864 2803 2745 2689 5242 50764917 477 467 4486 4355 4231 411 3998 389 3784 3685 3589 3.498 3410 3326 3245 3.1673092 3020 2951 5002 5786 5582 5389 5206 4868 4712 4564 4423 4288 4160 4039 382 37063605 3508 3.415 3327 3242 3161 8 5733 6.463 6210 5971 5747 5535 5235 516 4968 4799 4639 4R? 434 4207 3964 3837 3726 3619 3.518 3421 3329 9 705 708 6802 651562475995 5759 5537 5308 52 4946 472 4601 4451 4303 413 4031 3905 3786 36733566 3463 10 811 772 7350 7024 670 6418 6345 5889 5650 5.426 5215 5019 4833 4659 44944329 4192 4054 3.923 3799 3682 357 11 8760830678877499 709 6805 6.695 6 207 5908 5687 5653 5234 5029 48364656 486 4327 417 4035 3902 3776 3656 2 9385 8863 8.384 793 7536 731 6814 6492 6194 5918 5.660 501 5197 1988 4793 4611 409 4278 4127 3985 3851 3725 3 99869394 8853 8.358 7904 7487 7103 6750 604 61225812 5583 532 5118 4910 475 4533 4362 4203 4053 3912 3780 14 10.563 9899 9295 8745 8244 7786 7367 6982 6 628 6302 6.002 5724 5468 5229 5008 4802 46114432 4265 4108 3962 3824 15 10118 103809712 908 8559 8.061 7606 7191 6811 6462 612 5847 5575 5324 5092 4876 4675 4.489 43154153 4001 3859 16 11652 10.838 10106 947 8851 8.313 7824 7379 6974 6604 6 265 5954 5668 5 405 5152 4938 4730 4536 4357 41894033 3.887 1 2166 11274 10.477 9763 9122 854 802275497120 6729 6373 6047 579 5.475 5222 4990 4775 456 4391 4219 4059 3910 18 2659 11690 10828 100599372 8756 8201 7702 7250 6840 6.457 61285818 5534 5273 5.033 48124608 4.419 4203 4080 3928 19 3134208511158 0336 95048950 8365 7839 7366 6938 6550 61585872 5584 5 316 5070 4843 4635 4442 4263 4097 3942 20 3590 12.462 11.4701059498189 129 854 1963 1969 7025 6623 6259 5929 5628 5353 5301 4870 4657 4450 4219 41103954 21 2029 12821 11764 10836 10.017 9292 8649 807575627102 6587 6312 5973 5665 5384 517 4891 4675 4.476 4292 41213963 22 1451 13163 12.042 11051 10 201 942 8781767645 7170 6743 6359 601 5696 5410 549 4909 4690 4488 4302 41303970 23 857 13489 12.303 11272 10371 9580 8883 8265 7718 7230 6792 6.399 601 57235432 5167 4925 4703 4.499 4311 41373976 24 15 247 13799 12.550 11469 105299707 89858348 7784 7283 6835 6434 6073 5746 5 451 5182 4937 473 4507 4318 413 3.981 25 55622 1094.12783 1654 10 675 923 9077842278437330 687364646097 5766 5467 519549684721 451 4323 4173985 26 5983 14375 3003 11826 10 10 9929 91618 8 1896 7372 6906 6491 611 5783 5.680 5206 4956 4728 4520 4328 4151 3.988 27 330 1543 321 119870 935 1027 9237 856 793 7409 6935 654 61365798 5.492 525 4964 4734 4524 433241543990 28 5663 1898 13.406 207 1105110116 9307 8602 7984 7441 69616534 5152 5810 5502 5223 4970 47394528 43354157 3992 295.984 1541 13.591 12.278 11158 10198 93708650 8022 7470 6983 6551 6166 5820 5510 5229 4975 473 4531 4337 41593994 30 17292 15312 13.765 12.409 11258 10274 9427 8694 8055 7496 7003 6566 611 5829 5517 5235 4979 4/46 4534 4339 41603995 40 19793 1715915046 13 332 11925107579779 8951 824 7634 7105 6642 6233 5871 5548 5258 4 997 4.760 4544 4347 4166 3.999