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 24% each of the last three years. Casey is considering a capital budgeting project that would require a $4,450,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 20%. The project would provide net operating income each year for five years as follows:

Exhibit 13B-2

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?

Sales Variable expenses Contribution margin Fixed expenses: $ 4,300,000 1,960,000 2,340,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation $790,000 890,000 Total fixed expenses Net operating income 1,680,000 $ 660,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factors) using tables