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.

NPV =  (47,075.38)

Explanation:

Net Present value(NPV) is method of evaluating investment proposal that considers the time value. To compute the NPV we do as follows:

NPV = Present Value of Cash inflow - Initial cost

Cash inflow is computed as follows:

Sales revenue - Variable cost - out of pocket fixed cost

Note that depreciation is not an item of cash out flow, so we do not include it in the calculation,

Annual cash inflow=

4,3000,000-1,900,000-765,000

=  1,635,000.

PV of cash inflow

= A × (1-(1+r)^(-n))/r

= 1,635,000 × (1-(1.18)^(-5))/0.18

= 1,635,000 × 3.127171021

= 5,112,924.62  

NPV =  5,112,924.62  - 5,160,000

NPV =  (47,075.38)

my economy is bad lots of people are poor and lots of people are jobless and homeless

don't be her freind because that peson is egnoring you so don't be her freind