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 23% each of the last three years. Casey is considering a capital budgeting project that would require a $5,380,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating income each year for five years as follows:

Sales $4,800,000

Variable expenses 2,160,000

Contribution margin2,640,000

Fixed expenses:

Advertising, salaries, and other

fixed out-of-pocket costs $840,000

Depreciation 1,076,000

Total fixed expenses 1,916,000

Net operating income $724,000

Click here to viewExhibit 13B-1andExhibit 13B-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?