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 $5,950,000 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		$ 5,300,000
Variable expenses		2,360,000
Contribution margin		2,940,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 890,000
Depreciation	1,190,000
Total fixed expenses		2,080,000
Net operating income		$ 860,000

Click here to viewExhibit 14B-1andExhibit 14B-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?

• Req 1
• Req 2
• Req 3
• Req 4A
• Req 4B

What is the project's net present value?(Round your final answer to the nearest whole dollar amount.)

Net present value