What is the NPV?

What is the simple rate of return?

Should the project be accepted? Why or why not?

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 year for five years as follows: $2,500,000 1,000,000 1,500,000 Sales Variable expenses Contribution margin Fixed expenses Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $600,000 600,000 1,200,000 $ 300,000