60.1K

Verified Solution

Link Copied!

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 $4,000,000 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: $3,900,000 1,800,000 2,100,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $750,000 800.000 1,550,000 550,000 Click here to view Exhibit 148-1 and Exhibit:14B-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? 4-6. Would Casey be inclined to pursue this investment opportunity? Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 48 What is the project's net present value? (Round your final answer to the nearest whole dollar amount.) Net present value 2 2,100,00 contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating incone $750,000 800,000 3 points 1,550,000 $ 550,000 eBook Click here to view Exhibit 14B-1 and Exhibit 14B-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? 4-6. Would Cosey be inclined to pursue this investment opportunity? Print References Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Reg 4 Reg 4B 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%.) Internal rate of return % 2 2,100,000 contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $750,000 800,000 3 points 1,550,000 $ 550,000 Book Click here to view Exhibit 14B-1 and Exhibit 14B-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? 4-5. Would Casey be inclined to pursue this investment opportunity? Print References Complete this question by entering your answers in the tabs below. Reg 1 Reg 3 Req 4A Reg 2 Req 48 What is the project's simple rate of return? (Round your answer to 1 decimal place.) Simple rate of return 5% 2 2,100, 60W Lontribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $750,000 800,000 1,550,000 $ 550,000 Ints eBook Click here to view Exhibit 14B-1 and Exhibit 14B-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? Print eferences Complete this question by entering your answers in the tabs below. Req 1 Req 2 Reg 3 Req 4A Req 4B Would the company want Casey to pursue this investment opportunity? OYes No Net operating income 550,000 K Click here to view Exhibit 14B-1 and Exhibit 14B-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? 4-6. Would Casey be inclined to pursue this investment opportunity? os Complete this question by entering your answers in the tabs below. Reg 1 Reg 2 Reg 3 Req 4A Reg 48 Would Casey be inclined to pursue this investment opportunity? Yes O No

Answer & Explanation Solved by verified expert

See Answer