asey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his divisions return on investment (ROI), which has been above 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 20%. The project would provide net operating income each year for five years as follows:

Sales		$ 4,500,000
Variable expenses		2,040,000
Contribution margin		2,460,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 810,000
Depreciation	960,000
Total fixed expenses		1,770,000
Net operating income		$ 690,000

See textbook chapter 14 Exhibit 14B-1 (Links to an external site.) and Exhibit 14B-2 (Links to an external site.), to determine the appropriate discount factor(s) using tables.

Required:

1. What is the projects net present value?
2. What is the projects internal rate of return to the nearest whole percent?
3. Would the company want Casey to pursue this investment opportunity?
4. Would Casey be inclined to pursue this investment opportunity?