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 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 Company's discount rate is 18%. The project would provide net operating income each year for five years as follows:

Sales$3,700,000Variable expenses1,720,000Contribution margin1,980,000Fixed expenses:Advertising, salaries, and other

fixed out-of-pocket costs$730,000Depreciation760,000Total fixed expenses1,490,000Net operating income$490,000

Brewer_8e_Rechecks_2020_01_30

Click here to viewExhibit 12B-1andExhibit 12B-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?

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?