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Safari File Edit View History Bookmarks Develop Window Help 4) 79%) 0, Sun 1:09 PM Q newconnect.mheducation.com Paylocity Capsim Portal Home AccountingMasterM LEARNSMART Netflix YouTube Pinterest Blackboard Facebook Dalton and Hannah by Jud Davis Photography Connect Etsy :: Your place to buy and sell all things h Derrick Iverson Is A Divisional Manager For H Connect Chapter 13 6 Savad Help Save & Exit Submit 10 Check my work 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 20% each of the last three years. Derrick is considering a capital budgeting project that would require a $4,160,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: 3.35 points Sales Variable expenses Contribution margin Fixed expenses: $3,700,000 1,600,000 2,100,000 eBook Hint Advertising, salaries, and other fixed out-of-pocket costs Depreciation $ 710,000 710,000 Print Total fixed expenses Net operating income 1,420,000 $ 680,000 References Click here to view Exhibit 138-1 and Exhibit 13B-2, to determine the appropriate discount factors) using tables Ideas 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? Complete this question by entering your answers in the tabs below Mc Graw Hill Prev 6 of 6 Next>

Explanation / Answer

Annual net cash flows = 680000+710000= 1390000 1 Net present value = (1390000*3.058)-4160000= 90620 3.058 2 Simple rate of return = 680000/4160000= 16.3% 3 Yes 4 Derrick might be inclined to reject the opportunity because its simple rate of return of 16.3% is well below his historical return on investment (ROI) of 20%

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