Chapter 12, Problem 17P

Net Present Value Analysis; Internal Rate of Return; Simple Rate of Return
Cain Nelson is a divisional manager for Pigeon Company His anal pay raises me 1rgel determined by his divisions return on investment (ROI), which has been above 20% each of the last three vets. Cain is considering a capital budgeting project that would require a $3,500,000 investment in equipment with a useful life of five timid no salvage nine Pigeon Company’s discount rate is 16%.
The project would provide net operating income each vet for five vets as follows:

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. Would the company wait Casey to pursue this investment opportunity? Would Casey be inclined to pursue this investment opportunity? Explain.