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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 18%. The project would provide net operating income each year for five years as follows:

Sales $ 3,800,000Variable expenses 1,760,000Contribution margin 2,040,000Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs$ 740,000 Depreciation780,000 Total fixed expenses 1,520,000Net operating income $ 520,000

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?

2. What is the projects internal rate of return to the nearest whole percent?

3. What is the projects 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?