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 20% each of the last three years. Casey is considering a capital budgeting project that would require a $3,500,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Companys discount rate is 16%. All sales are collected in cash, all variable expenses are paid in cash during the year they are incurred, and all out-of-pocket fixed expenses are paid in cash during the year they are incurred. The project would provide net operating income each year for five years as follows:

Sales		$	3,400,000
Variable expenses			1,600,000
Contribution margin			1,800,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$700,000
Depreciation	700,000
Total fixed expenses			1,400,000
Net operating income		$	400,000

Required:
1.	What are the annual net cash inflows for this project?

2.	What is the present value of the cash inflows? (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

3.	What is the projects net present value? (Use Microsoft Excel to calculate present values. Do not round intermediate calculations.)

4.	What is the projects internal rate of return? (Use Microsoft Excel to calculate present values. Round your percentage to two decimal places.)

4-a.	Would the company want Casey to pursue this investment opportunity?
	Yes No

Annual Cash Inflows: Sales Variable Expenses Fixed Out-of-Pocket Expenses Depreciation Expense + Depreciation Expense Net Cash Inflows Per Year