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1A- 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
1A- 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 $3,000,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 15%. The project would provide net operating income each for five follows: year ( 5 marks) years as Sales... Variable expenses $2,500,000 1,000,000 ........ Contribution margin.... Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs .... Depreciation.... 1,500,000 $800,000 600,000 Total fixed expenses 1200,000 $ 300,00 Net operating income .... Required: 1. Compute the project's net present value. ( 2 marks) 2. Compute the project's simple rate of return. ( 2 marks) 3. Would the company want Derrick to pursue this investment opportunity? Would Derrick be
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