Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined...

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Accounting

Derrick Iverson is a divisional manager for Holston Company. Hisannual pay raises are largely determined by his division’s returnon investment (ROI), which has been above 20% each of the lastthree years. Derrick is considering a capital budgeting projectthat would require a $3,200,000 investment in equipment with auseful life of five years and no salvage value. Holston Company’sdiscount rate is 18%. The project would provide net operatingincome each year for five years as follows:
Sales $ 2,800,000
Variable expenses 1,150,000
Contribution margin 1,650,000
Fixed expenses:
Advertising, salaries, and other fixed
out-of-pocket costs $ 610,000
Depreciation 640,000
Total fixed expenses 1,250,000
Net operating income $ 400,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determinethe 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 investmentopportunity?
3b. Would Derrick be inclined to pursue this investmentopportunity?

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Derrec Iverson Q1 SrNo Particulars Amounts Amounts 1 Sales 280000000 2 Variable Expenses 115000000 3 Contribution Margin 12 165000000 4 Advertising Salary and other fixed out of pocket expenses 61000000 5 Depreciation 64000000 6 Total Fixed See Answer

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Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined...

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Accounting

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Sales			$	2,800,000
Variable expenses				1,150,000
Contribution margin				1,650,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	610,000
Depreciation		640,000
Total fixed expenses				1,250,000
Net operating income			$	400,000