Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return oninvestment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that wouldrequire a $4,100,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is19%. The project would provide net operating income each year for five years as follows:SalesVariable expensesContribution marginFixed expenses:costsDepreciation$ 4,000,0001,840,0002,160,000Advertising, salaries, and other fixed out-of-pocket$ 760,000820,0001,580,000Net operating income$ 580,000Total fixed expensesClick here to view Exhibit 7B-1 and Exhibit 7B-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?Complete this question by entering your answers in the tabs below.Req 1Req 2Req 3Req 4AReq 4BWhat is the project's net present value?Note: Round your final answer to the nearest whole dollar amount.Net present value< Req 1Req 2 >

Initial cost = $4,100,000Net operating income = $580,000Depreciation = $820,000Discount rate = 19%

Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on nvestment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $4,100,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: costs Depreciation $ 4,000,000 1,840,000 2,160,000 Advertising, salaries, and other fixed out-of-pocket $ 760,000 820,000 Total fixed expenses Net operating income 1,580,000 $ 580,000 Click here to view Exhibit 7B-1 and Exhibit 7B-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? B. 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?

Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his division's return on nvestment (ROI), which has been above 23% each of the last three years. Casey is considering a capital budgeting project that would require a $4,100,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales Variable expenses Contribution margin Fixed expenses: costs Depreciation $ 4,000,000 1,840,000 2,160,000 Advertising, salaries, and other fixed out-of-pocket $ 760,000 820,000 Total fixed expenses Net operating income 1,580,000 $ 580,000 Click here to view Exhibit 7B-1 and Exhibit 7B-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? B. 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?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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