Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6] Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his nt (Ron which has been above 20% each of the last three years. Derrick is considering a capital budgeting project that would ue. Holston Company's discount rate is investme require a $4,160,000 investment in equipment with a useful life of five years and no salvage val 19%. The project would provide net operating income each year for five years as follows: $3,700,000 Sales 1600,000 2,100,000 Variable expenses Contribution margin Pixed expenses Advertining, salaries, and other fixed 710,000 832,000 out-of-pocket costs Depreciation 1:542,00 $ 558,000 Total fixed expenses Net operating income Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factorfs) using tables Required: 1. Compute the project's net present value 25% 23% 24% 22% 20% 21% 19% 17% 18% 16% 14% 15% 12% 13% 11% 10% 000877 0.870 0.862 0855 0.847 0840 0.833 0826 0820 0813 o.806 0.800 0.731 0.712 0693 0675 0658 0.641 0624 0609 0593 0579 0564 0551 0.537 0.524 0.512 Periods 4% 5% 6% 7% 8% 9% 0862 10962 o0.952 0.943 0.935 0926 0917 0.909 0.901 0.893 0885 0.842 0.826 0812 0.797 0783 0.769 0.756 0743 0.731 0.718 0706 0694 0683 0672 0661 0.650 o 2 0925 0.907 0.890 0.873 0.857 08428 2 0925 0.907 0.890 0.873 0.857 3 0889 0864 0840 0816 0.794 0.772 0.751 4 0855 0823 0.792 0.763 0.735 0.708 0583 0.659 0.636 0613 0.592 0.572 0.552 0.534 0.516 784 0747 0.7 13 0681 0650 0620593 0567 0543 0 5 19 0497 0476 0456 0437 0419 0402 0386 0370 0355 0.341 0.328 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0456 0.432 0.410 0.390 0.370 0.352 7 0.760 0711 0.665 0.623 0.583 0547 0513 0.482 0452 0425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 o263 0.2 8 0 731 0677 0627 0582 0540 0502 O 467 0434 O 404 O 376 0351 O 327 0305 0285 0266 0249 0233 O2R204 0.180 0167 0.155 0.144 0.134 O 703 0 645 0592 0544 0500 0460 0424 0391 0361 0333 0308 0284 0263 0243225 0209 o.194 01 676 0 6 1 4 0558 0.508 0.463 0422 0.386 0352 0322 0295 0.270 0247 0227 0208 191 0176 0 162 O 149 137 126 O116 t07 11 0650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0261 0237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.086 12 0625 0557 0.497 0.444 0.397 0356 0.319 0.286 0.257 0231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0 102 0092 0.083 0.076 0.069 0.061 0.055 0 340 0 299 0.263 0.232 0205 0181 0.160 0.141 . 125 0.111 0.099 0.088 0.078 0069 0062 0.055 0.049 0.044 15 0555 0.481 0417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0140 0.123 0.108 0s 0.084 0074 0065 0057 0051 0045 0040 0.035 13 0601 0530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0084 0075 0 o68 6 0534 0.458 0.394 0.339 0.292 0.252 0218 0.188 0.163 0.141 0.123 0.107 0093 0081 0071 0062 0.054 0047 0042 0036 0.032 o.028 17 0.513 0.436 0.371 0.317 0270 0.231 0.198 0.170 0.146 0.125 0 108 0093 0.080 0.069 0.060 0.052 0.045 0039 0.034 0.030 0.026 0.023 18 0494 0416 0 350 0 296 0 250 0.212 0.180 0.153 O 130 0.111 O 095 0081 0.069 OO59 0.051 0044 0.038 0032 0028 0024 0.021 a018 90.475 0.396 0331 0.277 0.232 0194 0.164 0.138 0116 0098 0083 0 070 0 060 0.051 0.043 0.037 0.031 0027 0023 0.020 0017 0014 20 0456 0.377 0.312 0.258 0215 0.178 0.149 0.124 0.104 0087 0073 0061 0051 0043 0.037 0.031 0.026 0022 0019 0.016 0.014 0.012 21 0430 0.359 0 294 0.242 0.199 0.164 0.135 0.112 0093 0077 0064 0053 0.044 0037 0031 0.026 0.022 0018 0015 0013 0.011 0.000 22 0.422 0.342 0.278 0.226 0.184 0.150 0.123 0.101 0.003 0068 0056 0046 0.038 0032 0.026 0.022 0018 0015 0013 0011 0.009 0007 23 0406 0.326 0262 0.211 0.170 0.138 0.112 0.091 0074 0060 0.049 0.040 0033 0027 0.022 0018 0.015 0012 0010 0.009 0.007 0.000 24 0390 0.310 0.247 0.197 0.158 0 126 0 102 0082 0 066 0053 0043 0 035 0.028 0023 0019 0015 0013 0010 0008 0 007 0006 00os 25 0,375 0 295 0 233 0.184 0.146 0.116 0.002 0074 0059 0047 0038 0o30 0024 0020 0016 0013 0010 0009 0007 0006 0.00s 0,004 26 0,361 0.281 0220 0.172 0.135 0.106 0.084 0066 0053 0042 0033 0026 0021 0017 0014 0011 0009 0007 0006 0.005 0004 0003 27 0.347 0.268 0.207 0.161 0.125 0.098 0.076 0060 0047 0037 0029 0023 0018 0014 0011 0.009 0.007 0006 0.005 0.004 0.003 0002 0.333 0.255 0196 0.150 0.116 0.090 0.009 0.054 0042 0.033 0.026 0020 0016 0012 10 0.008 0006 0005 0004 0003 0.002 0.002 O 321 243 O.105 O.141 0. 107 0.002 .063 0 048 0037 0029 0022 0.017 0014 0.011 .008 o.oos o.005 0004 0003 0O02 0.002 0.002 0044 0033 0026 0020 0015 0012 0009 0 007 0.005 0.004 0 003 0003 0002 0 002 0001 O 208 O 142 0097 0067 0046 0.032 0.022 0015 0011 0008 0.005 OCO4 0.003 0002 0001 0001 0001 0000 0000 0.000 0.000 0.000 28 29 30 0.308 0.231 0.174 0 131 0.099 0.075 0.057 40 EXHIBIT 138-2 Present Vialue of an Apenaity of $t n Anearst- sin Anears;11-(T171 Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 10.962 0952 0.943 0.935 0926 0.917 0.909 0.901 0 893 0885 0.877 0870 0.862 0855 0.847 0.840 0.833 0826 0.820 0813 0.806 0.800 21.886 1.859 1833 1.808 1783 1.759 1.736 1.713 1690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 1.509 1.492 1.474 1.457 1.440 3 2.775 2.723 2.673 2624 2577 2531 2.487 2.444 2402 2.361 2.322 2 283 2.246 2210 2.174 2.140 2.106 2074 2.042 2.011 1.981 1.952 4 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3037 2974 2.914 2.855 2.798 2743 2690 2.639 2.589 2540 2.494 2.448 2.404 2362 4.452 4.329 4212 4.100 3993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 2926 2864 2.803 2745 2689 6 5.242 5076 4.917 4.767 4623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2951 8 6.733 6463 6 210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4 487 4.344 4 207 4078 3.954 3.837 3726 3619 3.518 3421 3.329 10 8.1 11 7722 7360 7024 6.710 6.418 6.145 5889 5650 .426 5.216 5019 4833 4659 4.494 4.339 4 192 4054 3.923 3799 3682 3.571 6002 5.786 5582 5.389 5.206 5.033 4.868 4712 4.564 4.423 4.288 4.160 4.039 3 922 3.812 3.706 3.605 3.508 3.416 3.327 3.242 3.161 7.435 7.108 6.802 6515 6.247 5.995 5.759 5537 5.328 5.132 4.946 4.772 4607 4 451 4.303 4.163 4.031 3.905 3.786 3.673 3.566 3.463 11 8.760 8306 7887 7499 7.139 6.805 6.495 6.207 5938 5.687 5453 5.234 5.029 4836 4656 4486 4.327 4.177 4035 3.902 3.776 3.656 12 9.385 8.863 8.384 7943 7536 7.161 6.814 6.492 6194 5.918 5.660 $.421 5.197 4988 4.793 4. 13 9986 9.394 8.853 8.358 7904 7.487 7.103 6.750 6.424 6.122 5842 5.583 5342 5 118 4.910 4715 4.533 4 362 4 14 10.563 9.899 9.295 8.745 8244 7.786 7.357 6.982 6 628 6.302 6002 $.724 5 468 52 15 11.118 10.380 9.712 9.108 8559 8.061 7.606 7.191 6811 6.462 6.142 5.847 5575 5324 5.092 4.876 4.675 4.489 4315 4.153 611 4.439 4.278 4.127 3.985 3.851 3.725 203 4053 3.912 3.780 229 5.008 4 802 4.611 4.432 4.265 4.108 3.962 3.824 16 11.652 10.838 10.106 9.447 88 17 12.166 11274 10.477 9763 9.122 8544 8022 7.549 7.1 18 12659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.4 19 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6938 6.550 6.198 5877 5584 5.31 20 13.590 12.462 11 470 10594 9818 9129 8514 7963 7.469 7 51 8.313 7.824 7.379 6974 6 604 6 265 5.954 5668 5.405 5.162 4938 4.730 4536 4.357 4 189 4.033 3.887 467 6.128 5.818 5534 5.273 5033 4.812 4.608 4419 4.243 4080 3.928 7 3942 20 6.729 6.373 6.047 5749 5475 5.222 4.990 4.775 4576 4.391 4 219 4.059 6 5070 4.843 4635 4442 4263 4097 6259 5 929 5.628 5353 5101 4.870 4.657 4460 4 279 4.110 3.954 025 6.623 21 14. 029 12.821 11.764 10.836 10.017 9.292 8649 8.075 7562 7.102 6.687 6312 5973 5665 5.384 5.127 4.891 4.675 4476 4.292 4121 3.963 645 7.170 6.743 6 359 6011 5696 5.410 5.149 4 909 4690 4.488 4 302 4.130 3 970 1061 10.201 9.442 B.772 8.176 7 23 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8.266 7718 7 24 15.247 13.799 12.550 11.469 1 230 6792 6399 6.044 5723 5.432 5.167 4.925 4.703 4499 4311 4.137 3 823 9077 8422 7843 7330 6873 6 464 6.097 5766 5467 5.195 4.948 4721 4514 4323 4.147 10.529 9.707 8985 8.348 7.784 7.283 6.835 6.434 6073 5746 5.451 5.182 4.937 4.713 4507 4.318 4.143 3981 15.622 14.094 12.783 11.654 10.675 9 8 14.375 13003 11.826 10810 9.929 9.161 8488 7.896 7.372 6.906 6.491 6.118 26 15983 1 16.330 14.643 13 211 11.987 10.935 10.027 9.237 8548 7943 7.409 6.935 6.514 6.136 5.708 5 5783 5.480 5.206 4.956 4.728 4.520 4.328 4.151 3.988 27 .492 5.215 4.964 4.734 4524 4.332 4.154 3.990 3 14h : 13406 12 137 11051 01 16 9307 8602 7984 y 441 6.961 6534 6.152 5810 5502 5223 4.970 4,39-saa a 335 aib, 3gn 29 16984 15.141 13.591 12278 11.158 10.198 9.370 8.650 8022 7470 6.983 6 551 6.166 5820 5510 5.229 4.975 4.743 4.531 4.337 4.159 3.994 30 17292 15 372 13 765 12 400 11.258 10.274 9 427 8.694 8055 7.496 7.003 6566 6.177 5.829 5517 5235 4.979 4.746 4 40 19793 17 159 15.046 13332 11.925 10 757 9.779 8.951 8244 7634 7.105 642 6.233 5871 5548 5.258 4 997 4.760 4.544 4 347 4.166 3.999 Chapter10.doc Required: 1. Compute the project's net present value. 03.3932 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? Book Hint Print erences Complete this question by entering yor answers in the tabs below. Req 2 Req 3A Req 38 Req 1 Compute the project's net present value. (Round your final answer to the nearest whole dollar amount.) Net present value int Complete this question by entering your answers in the tabs below. rint Req 3B Req 3A RReg 2 Req 1 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%.) rate of return