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Problem $12-17($Algo$)$ Net Present Value Analysis; Internal Rate of Return; Simple Rate of Return $[$L$0122,$ L$012-3,$ LO$12-6]$

Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's 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 Company's discount rate is $18\%.$ The project would provide net operating income each year for five years as follows:

Sales

Variable expenses

Contribution margin

$$3,800,000$

$1,760,000$

$2,040,000$

Fixed expenses:

Advertising, salaries, and other fixed out$-$of$-$pocket costs

Depreciation $q,$ Net operating income $q,$

Click here to view Exhibit $12$B$-1$ and Exhibit $12$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

What is the project's net present value?

What is the project's internal rate of return to the nearest whole percent?

What is the project's 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?

Complete this question by entering your answers in the tabs below.

Req $1$

Req $2$

Req $3$

Req $4A$

Req $4$B

What is the project's net present value? $($Round your final answer to the nearest whole dollar amount.$)$

Net present value

Prev.

$12$ of $13$

NextProblem $12-17($Algo$)$ Net Present Value Analysis; Internal Rate of Return; Simple Rate of Return $[$LO$12-2,$ LO$12-3,$ LO$12-6]$

Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division$$s return on investment $($ROI$),$ which has been above $22\%$ each of the last three years. Casey is considering a capital budgeting project that would require a $$3,900,000$ investment in equipment with a useful life of five years and no salvage value. Pigeon Company$$s discount rate is $18\%.$ The project would provide net operating income each year for five years as follows:

Sales $ $3,800,000$

Variable expenses $1,760,000$

Contribution margin $2,040,000$

Fixed expenses:

Advertising, salaries, and other fixed out$-$of$-$pocket costs $ $740,000$

Depreciation $780,000$

Total fixed expenses $1,520,000$

Net operating income $ $520,000$

Click here to view Exhibit $12$B$-1$ and Exhibit $12$B$-2,$ to determine the appropriate discount factor$($s$)$ using tables.

Required:

$1.$ What is the project$$s net present value?

$2.$ What is the project$$s internal rate of return to the nearest whole percent?

$3.$ What is the project$$s 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?