Why is (1,956,420) incorrect? I did: Now: (3,300,000) 1-5: 420,000*3.199=1,343,5
ID: 2474683 • Letter: W
Question
Why is (1,956,420) incorrect? I did:
Now: (3,300,000)
1-5: 420,000*3.199=1,343,580 (3,300,000)+1,343,580=(1,956,420)
ezto.mheducation.com ] Ch11 HWw 11B-1.JPG 1,109x691 McGraw-Hill Connect | 11B-2.JPG 1,122x708 Check Your Work Derrick Iverson Is A Div net present value table value: 10.00 points 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 $3,300,000 investment in equipment with a useful life of five years and no salvage value. Holston Company's discount rate is 17%. The project would provide net operating income each year for five years as follows: Sales Variable expenses $2,900,000 1,200,000 Contribution margin Fixed expenses 1,700,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation 640,000 640,000 Total fixed expenses 1,280,000 Net operating income $ 420,000 Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required 1. Compute the project's net present value. (Use the appropriate table to determine the discount factor(s), intermediate calculations and final answer to the nearest dollar amount.) Net present value $ (1,956,420)X 2. Compute the project's simple rate of return. (Round your answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.) Simple rate of returnExplanation / Answer
1
Calculation of Project's Net Present value:
Net Operating income
$ 420,000
Add: Depreciation
$ 640,000
Annual Cash Inflow (A)
$ 1,060,000
Present value annuity factor (17%, 5 years) (B)
3.19935
Present value of cash inflows = A*B
$ 3,391,307
Less: Initial Investment
$ (3,300,000)
Net Present value
$ 91,307
2
Calculation of Simple rate of return :
Annual Net Operating income (A)
$ 420,000
Initial Investment (B)
$ 3,300,000
Simple rate of return = A/B
12.7%
3-a
The Project has a positive et present value, hence the Company would want Derrick to pursue the investment opportunity.
Answer- Yes
3-b
The rate of return from the project is less than required ROI that is 20%, hence Derrick would not be inclined to pursue the investment opportunity.
Answer- No
1
Calculation of Project's Net Present value:
Net Operating income
$ 420,000
Add: Depreciation
$ 640,000
Annual Cash Inflow (A)
$ 1,060,000
Present value annuity factor (17%, 5 years) (B)
3.19935
Present value of cash inflows = A*B
$ 3,391,307
Less: Initial Investment
$ (3,300,000)
Net Present value
$ 91,307
2
Calculation of Simple rate of return :
Annual Net Operating income (A)
$ 420,000
Initial Investment (B)
$ 3,300,000
Simple rate of return = A/B
12.7%
3-a
The Project has a positive et present value, hence the Company would want Derrick to pursue the investment opportunity.
Answer- Yes
3-b
The rate of return from the project is less than required ROI that is 20%, hence Derrick would not be inclined to pursue the investment opportunity.
Answer- No
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