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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 (ROI),
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 20% for the past few years. Natalie is analyzing a capital budgeting project that would require a $4,200,000 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: $3,600,000 1,550,000 2,050,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $ 700,000 840,000 1,540,000 $ 510,000 Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-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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