Casey 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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 18%. The project would provide net operating income each year for five years as follows:

Sales $ 3,700,000Variable expenses 1,720,000Contribution margin 1,980,000Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs$ 730,000 Depreciation760,000 Total fixed expenses 1,490,000Net operating income $ 490,000