3%2Feegist mework Exercise 13-9 Net Present Value Analysis and Simple Rate of Re

Question

3%2Feegist mework Exercise 13-9 Net Present Value Analysis and Simple Rate of Return [LO13-2, LO13-6) Derrick Iverson is a divisional manager for Holston Company. investment (ROI which has been above 20% each of the last three years. Der require a $3,560.000 investment in equilpmen is ,6%, The project would provide net operating income each year for five years as follows: His annual pay raises are largely determined by his division's return on t with a useful life of five years and no salvage value. Holston Company's discount rate rick is considering a capital budgeting project that would Sales Variable expenses Contribution margin Fixed expenses: $3,eee,eee 1,258,808 1,758,09e Advertising, salaries, and other fixed out-of-pocket costs Depreciation $658,880 658,888 Total fixed expenses Net operating income 45e, eee Click here to view Exhibit 13B1 and Exhibit 138-2, to determine the appropriate discount factorfs) using tables 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. 4 of 6 Next>

Explanation / Answer

1/(1+.16)^n 16% Year Cash flow Disc Fac Dis. Cash Flow 0                -35,60,000 1 -35,60,000 1                  11,00,000 0.862069      9,48,276 2                  11,00,000 0.743163      8,17,479 3                  11,00,000 0.640658      7,04,723 4                  11,00,000 0.552291      6,07,520 5                  11,00,000 0.476113      5,23,724 NPV          41,723 1100000(OCF)=450000 (Net Income)+650000(Depn) 2 Simple rate of return=450000/3560000 12.64% 3a Since NPV>0 Company want derrick to persue investment opportunity 3b Since ROI

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.