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Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division s return on investment ( ROI
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 each of the last three years. Casey is considering a capital budgeting project that would require a $ investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is The project would provide net operating income each year for five years as follows:
Sales $
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed outofpocket costs $
Depreciation
Total fixed expenses
Net operating income $
Click here to view Exhibit B and Exhibit B to determine the appropriate discount factors using tables.
Required:
What is the projects net present value?
What is the projects internal rate of return to the nearest whole percent?
What is the projects simple rate of return?
a Would the company want Casey to pursue this investment opportunity?
b Would Casey be inclined to pursue this investment opportunity?
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