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 each of the last three years. Derrick is considering a capital budgeting project that would require a $ investment in equipment with a useful life of five years and no salvage value. Holston Company s discount rate is The project would provide net operating income each year for five years as follows:
sales: $
Variable Expenses $
Contribution Margin: $
Fixed Expenses:
fixed out o fpocket costs: $
Depreciation: $
Total Fixed expenses: $
NOI: $
Find project's net present value
Find project's simple rate of retun
a Would the company want Derrick to persue the investment opportunity?
b Would Derrick be inclined to persue this investement oppoertunity?
