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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 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  $4,000,000
Variable expenses  $ 1,840,000
Contribution margin   $ 2,160,000
Fixed expenses:    
Advertising, salaries, and other
fixed out-of-pocket costs $760,000  
Depreciation $ 820,000  
Total fixed expenses   $1,580,000
Net operating income  $580,000
 
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?

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