L$012-3,$ L$012-6]$

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 $21\%$ each of the last three years. Casey is considering a capital budgeting project that would

require a $$3,700,000$ investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is

$17\%.$ The project would provide net operating income each year for five years as follows:

Sales

Variable expenses

Contribution margin

$$3,600,000$

Fixed expenses:

Advertising, salaries, and other fixed out$-$

of$-$pocket costs

Depreciation

$$720,000$

Total fixed expenses $,740,000$

Net operating income

$$3,600,000$

$1,680,000$

$1,920,000$

$[1,460,000],[$$$460,000]$

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 $1$

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

Net present value