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 $5,160,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 18%. The project would provide net operating income each year for five years as follows:
Sales $4,300,000 Variable expenses 1,900,000 Contribution margin 2,400,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs$765,000 Depreciation765,000 Total fixed expenses 1,530,000 Net operating income $870,000 Compute the project's net present value.
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Home » Business » 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.