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Natalie Kane is a regional manager for Flexsteel Industries which manufactures furniture. Her annual salary increases are based on her region's return on investment
Natalie Kane is a regional manager for Flexsteel Industries which manufactures furniture. Her annual salary increases are based on her region's return on investment (ROI), which has been above 25% for the past few years. Natalie is analyzing a capital budgeting project that would require a $5,160,000 investment in equipment with a useful life of five years and no salvage value. Flexsteel Industries' discount rate is 18%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: out-of-pocket costs $4,400,000 1,950,000 2,450,000 Advertising, salaries, and other fixed $ 790,000 1,032,000 1,822,000 $ 628,000 Depreciation Total fixed expenses Net operating income Click here to view Exhibit 12B-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 Natalie to pursue this investment opportunity? 3b. Would Natalie be inclined to pursue this investment opportunity?
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