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 $5,380,000 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 $4,800,000 2,160,000 Contribution margin Fixed expenses 2,640,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation $840,000 1,076,000 Total fixed expenses 1,916,000 Net operating income $ 724,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables Required: 1. What is the project’s net present value? (Round discount factor(s) to 3 decimal places.) Net present value 2. What is the project’s internal rate of return to the nearest whole percent? Internal rate of return 3. What is the project’s simple rate of return? (Round percentage answer to 1 decimal place. i.e. 0.123 should be considered as 12.3%.) Simple rate of return
