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 $24\%$ each of the last three years. Casey is considering a capital budgeting project that would require a $$5,850,000$ investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is $20\%.$ The project would provide net operating income each year for five years as follows:

Sales

Variable expenses

Contribution margin

Fixed expenses:

$$5,2,$

$2,32,$

$2,88,$

Advertising, salaries, and other fixed outof$-$pocket costs

Depreciation

Total fixed expenses

Net operating income

Click here to view Exhibit $12$B$-1$ and Exhibit $12$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Requlred:

What is the project's net present value?

$2$ What is the project's internal rate of return to the nearest whole percent?

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?