Casey Nelson is a divisional manager for Pigeon Company. Hisannual pay raises are largely determined by his division’s returnon investment (ROI), which has been above 24% each of the lastthree years. Casey is considering a capital budgeting project thatwould require a $4,450,000 investment in equipment with a usefullife of five years and no salvage value. Pigeon Company’s discountrate is 20%. The project would provide net operating income eachyear for five years as follows: Sales $ 4,300,000 Variable expenses1,960,000 Contribution margin 2,340,000 Fixed expenses:Advertising, salaries, and other fixed out-of-pocket costs $790,000 Depreciation 890,000 Total fixed expenses 1,680,000 Netoperating income $ 660,000 Click here to view Exhibit 13B-1 andExhibit 13B-2, to determine the appropriate discount factor(s)using tables. Required: 1. What is the project’s net present value?2. What is the project’s internal rate of return to the nearestwhole percent? 3. What is the project’s simple rate of return? 4-a.Would the company want Casey to pursue this investment opportunity?4-b. Would Casey be inclined to pursue this investmentopportunity?
