What is the project's net present value? (Round your final answer to the nearest whole dollar amount.)Net present valueWhat is the project's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should beconsidered as 12%.)nternal rate of return%What is the project's simple rate of return? (Round your answer to 1 decimal place.)Simple rate of return%Would the company want Casey to pursue this investment opportunity?OYesONOWould Casey be inclined to pursue this investment opportunity?YesNo 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 24% each of the last three years. Casey is considering a capital budgeting project that wouldrequire a $4,450,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is20%. The project would provide net operating income each year for five years as follows:$ 4,300,0001,960,0002,340,000SalesVariable expensesContribution marginFixed expenses:Advertising, salaries, and otherfixed out-of-pocket costsDepreciationTotal fixed expenses$ 790,000890,0001,680,000660,000Net operating income

Answered: ect Wo provide net opera

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Related questions

Question

100%

What is the project's net present value? (Round your final answer to the nearest whole dollar amount.)
Net present value
What is the project's internal rate of return? (Round your answer to the nearest whole percentage, i.e. 0.123 should be
considered as 12%.)
nternal rate of return
%
What is the project's simple rate of return? (Round your answer to 1 decimal place.)
Simple rate of return
%
Would the company want Casey to pursue this investment opportunity?
OYes
ONO
Would Casey be inclined to pursue this investment opportunity?
Yes
No

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 24% each of the last three years. Casey is considering a capital budgeting project that would
require a $4,450,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is
20%. The project would provide net operating income each year for five years as follows:
$ 4,300,000
1,960,000
2,340,000
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
Depreciation
Total fixed expenses
$ 790,000
890,000
1,680,000
660,000
Net operating income

Expert Solution

Step 1

1. Calculation of Net Present Value

Before calculating Net Present Value, we should have accurate cash inflows. Net operating income is given $680000 which is determined after deducting the depreciation expense which is a non cash expense, therefore, depreciation expense should be added back to the net operating income.

Net Operating Income - $660000

Add: Depreciation - $890000

Revised Net Operating Income = $1550000

Year	Cash flows	Present value factor @ 20%	Present Value($)
0	-4450000	1	-4450000
1	1550000	0.83	1286500
2	1550000	0.69	1069500
3	1550000	0.58	899000
4	1550000	0.48	744000
5	1550000	0.4	620000
NPV			169000