Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division$$s return on investment $($ROI$),$ which has been above $22\%$ each of the last three years. Casey is considering a capital budgeting project requiring a $$3,900,000$ investment in equipment with a useful life of five years and no salvage value. Pigeon Company$$s discount rate is $18\%.$ The project would provide net operating income each year for five years as follows:

Sales $ $3,800,000$

Variable expenses $1,760,000$

Contribution margin $2,040,000$

Fixed expenses:

Advertising, salaries, and other fixed out$-$of$-$pocket costs $ $740,000$

Depreciation $780,000$

Total fixed expenses $1,520,000$

Net operating income $ $520,000$

Click here to view Exhibit $14$B$-1$ and Exhibit $14$B$-2,$ 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 nearest whole 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 investment opportunity?