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What is the project internal rate of return

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Reference no: EM132722475

Question - 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 $4,900,000 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:

Sales $4,600,000

Variable expenses 2,080,000

Contribution margin 2,520,000

Fixed expenses:

Advertising, salaries, and other fixed out-of-pocket costs $820,000

Depreciation 980,000

Total fixed expenses 1,800,000

Net operating income $720,000

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?

Reference no: EM132722475

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