What is the project net present value

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Reference no: EM133065378

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 20% each of the last three years. Casey is considering a capital budgeting project that would require a $3,500,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 16%. The project would provide net operating income each year for five years as follows:

Sales

 

$3,400,000

Variable expenses

 

1,600,000 

Contribution margin

 

1,800,000

ng bikes 60,000 Fixed expenses:

 

 

Advertising, salaries, and other fixed out-of-pocket costs

$700,000

 

Depreciation

700,000 

 

Total fixed expenses

 

1,400,000 

Net operating income

 

400,000$

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

Reference no: EM133065378

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