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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

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 23% each of the last three years. Casey is considering a capital budgeting project that would require a $4,100,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 19%. The project would provide net operating income each year for five years as follows:

Sales $ 4,000,000
Variable expenses 1,840,000
Contribution margin 2,160,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $ 760,000
Depreciation 820,000
Total fixed expenses 1,580,000
Net operating income $ 580,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. What is the projects net present value?

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