Derrick iverson is a divisional manager for holston company

Assignment Help Accounting Basics

Reference no: EM13588486

Derrick Iverson is a divisional manager for Holston Company. His annual pay raises are largely determined by his divisions 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 $3,200,000 investment in equipment with a useful life of five years and no salvage value. Holston Companys discount rate is 18%. The project would provide net operating income each year for five years as follows:

Sales	$ 2,800,000
Variable expenses	$ 1,150,000

Contribution margin	$ 1,650,000
Fixed expenses:
Advertising, salaries, and other	$ 610,000
fixed out-of-pocket costs
Depreciation	$ 610,000

Total fixed expenses	$ 1,220,000

Net operating income	$ 430,000

1. Compute the project's net present value.

2. Compute the project's simple rate of return.

Reference no: EM13588486

Questions Cloud

Internal controls and segregation of duties are both : internal controls and segregation of duties are both practices used by businesses to prevent and control unethical

Describe the different types of legal arrangements that can : describe the different types of legal arrangements that can take place to create a business combination. explain what

Alexander enterprises leases property to hamilton inc : alexander enterprises leases property to hamilton inc. because hamilton inc. is experiencing financial difficulty

The handle of a grinding wheel goes around a circle with a : question the handle of a grinding wheel goes around a circle with a circumference of 1.2m. if it requires a force of

Derrick iverson is a divisional manager for holston company : derrick iverson is a divisional manager for holston company. his annual pay raises are largely determined by his

Edwards co includes one coupon in each bag of dog food it : edwards co. includes one coupon in each bag of dog food it sells. in return for four coupons customers receive a dog

The 60 kg object below is released from rest at a height of : question the 6.0 kg object below is released from rest at a height of 5.0 m on a curved frictionless ramp. at the foot

X company estimates the following costs for next year : x company estimates the following costs for next year customer service 5442 direct materials 4412 factory insurance

Presented below is information related to viel company at : presented below is information related to viel company at december 31 2014 the end of its first year of

User Account

All Pages