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 23% each of the last three years. Casey is considering a capital budgeting project requiring a $5,800,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 19%. The project would provide net operating income each year for five years as follows:

Sales		$ 5,100,000
Variable expenses		2,280,000
Contribution margin		2,820,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 870,000
Depreciation	1,160,000
Total fixed expenses		2,030,000
Net operating income		$ 790,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, 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. What is the projects 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?

EXHIBIT 14B-1 Present Value of $1;(1+r)n1 ;r11(1+r)n1