Exercise 14-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO14-2, LO14-6] Derrick Iverson...

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Exercise 14-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO14-2, LO14-6] 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 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,150,000 Investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 17%. The project would provide net operating Income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: $ 4,300,000 1,900,000 2,400,000 Advertising, salaries, and other fixed out-of- pocket costs Depreciation $ 765,000 1,030,000 Total fixed expenses 1,795,000 Net operating income $ 605,000 Click here to view Exhibit 14B-1 and Exhibit 14B-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 Derrick to pursue this Investment opportunity? 3b. Would Derrick be inclined to pursue this Investment opportunity? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B 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%.) Simple rate of return 11.8 % Exercise 14-9 (Algo) Net Present Value Analysis and Simple Rate of Return [LO14-2, LO14-6] 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 25% each of the last three years. Derrick is considering a capital budgeting project that would require a $5,150,000 Investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 17%. The project would provide net operating Income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: $ 4,300,000 1,900,000 2,400,000 Advertising, salaries, and other fixed out-of- pocket costs Depreciation $ 765,000 1,030,000 Total fixed expenses 1,795,000 Net operating income $ 605,000 Click here to view Exhibit 14B-1 and Exhibit 14B-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 Derrick to pursue this Investment opportunity? 3b. Would Derrick be inclined to pursue this Investment opportunity? Answer is complete but not entirely correct. Complete this question by entering your answers in the tabs below. Req 1 Req 2 Req 3A Req 3B 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%.) Simple rate of return 11.8 %