PROBLEM 11-13A Net Present Value Analysis: Simple Rate of Return (LO11-2, LOT Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determine 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 Company's discount rate is 16%. The project would provide net operating income each year for five years as follows: $3,400,000 1,600,000 1,800,000 Sales ................ Variable expenses Contribution margin ... Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income .... 0.00,8013 $700,000 700,000 baru 1,400,000 $ 400,000 DO TUDO Required: 1. What is the project's net present value? 2. What is the project's simple rate of return? 3. Would the company want Casey to pursue this investment opportunity? Would Casey be inclined to pursue this investment opportunity? Explain. Problem 11-13A 1. The net present value is computed as follows: Now Purchase of equipment................ Sales. Variable expenses ..... Out-of-pocket costs... Total cash flows (a)... Discount factor (b).... Present value (a)(b) Net present value...... 2. The simple rate of return is computed as follows