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 21% each of the last three years. Casey is considering a capital budgeting project that would require a $3.700,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 17%. The project would provide net operating income each year for five years as follows: $ 3,600, 00e 1,680, 000 1,920,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $720, eee 748,e0e 1,468,000 460, 00e Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-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? 3 What is the oroiect's simple rate of return?
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 21% each of the last three years. Casey is considering a capital budgeting project that would require a $3.700,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 17%. The project would provide net operating income each year for five years as follows: $ 3,600, 00e 1,680, 000 1,920,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses $720, eee 748,e0e 1,468,000 460, 00e Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-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? 3 What is the oroiect's simple rate of return?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
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Chapter19: Capital Investment
Section: Chapter Questions
Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...
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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 21% each of the last three years. Casey is considering a capital budgeting project that would
require a $3.700.000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is
17%. The project would provide net operating income each year for five years as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
Depreciation
Total fixed expenses
$ 3,600, 00e
1,680, 080
1,928, 000
$720, 000
740,e00
1,460,000
460, 000
Net operating income
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Requlred:
1. What is the project's net present value?
2 What is the project's internal rate of return?
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?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3
Req 4A
Reg 48
What is the project's net present value? (Round your final answer to the nearest whole dollar amount.)
Net present value
<Req 1
Req 2 >](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc4c586ae-4106-4802-b9ef-8f91bcf476e5%2F6932434d-a682-4cad-80eb-d9e6c0f740d0%2F3hke8vc_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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 21% each of the last three years. Casey is considering a capital budgeting project that would
require a $3.700.000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is
17%. The project would provide net operating income each year for five years as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
Depreciation
Total fixed expenses
$ 3,600, 00e
1,680, 080
1,928, 000
$720, 000
740,e00
1,460,000
460, 000
Net operating income
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Requlred:
1. What is the project's net present value?
2 What is the project's internal rate of return?
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?
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Req 3
Req 4A
Reg 48
What is the project's net present value? (Round your final answer to the nearest whole dollar amount.)
Net present value
<Req 1
Req 2 >
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