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 $3,400,000Variable expenses 1,600,000Contribution margin 1,800,000Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs$700,000 ?Depreciation700,000 Total fixed expenses 1,400,000Net operating income $400,000I need these questions answered in excel please and the calculations shown wold be of great help for me and learning this questionRequired: What is the project’s net present value?What is the project’s internal rate of return to the nearest whole percent?What is the project’s simple rate of return?Would the company want Casey to pursue this investment opportunity? Would Casey be inclined to pursue this investment opportunity? Explain.

The project's net present value represents the present worth of the project and the project is only…

Answered: Casey Nelson is a divisional manager…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

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 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
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

I need these questions answered in excel please and the calculations shown wold be of great help for me and learning this question

Required:

What is the project’s net present value?
What is the project’s internal rate of return to the nearest whole percent?
What is the project’s simple rate of return?
Would the company want Casey to pursue this investment opportunity? Would Casey be inclined to pursue this investment opportunity? Explain.

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