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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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discout rate is 18%. The project would provide net operating income each year for five years as follows: $ 3,800,000 1,760,000 2,040,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $740,000 780,000 Depreciation Total fixed expenses 1,520,000 %24 520,000 Net operating income 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?

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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discout rate is 18%. The project would provide net operating income each year for five years as follows: $ 3,800,000 1,760,000 2,040,000 Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $740,000 780,000 Depreciation Total fixed expenses 1,520,000 %24 520,000 Net operating income 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?

Cornerstones of Cost Management (Cornerstones Series)
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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: $ 3,800,000 1,760,000 Sales Variable expenses Contribution margin 2,040,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $740,000 780, 000 Depreciation Total fixed expenses 1,520,000 520,000 Net operating income 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? 9 of 11 ... < Prev Next > o search 近
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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 18%. The project would provide net operating income each year for five years as follows: $ 3,800,000 1,760,000 Sales Variable expenses Contribution margin 2,040,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $740,000 780, 000 Depreciation Total fixed expenses 1,520,000 520,000 Net operating income 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? 9 of 11 ... < Prev Next > o search 近
EXHIBIT 14B-1 PreSent Value of $t; a Periods 4% 5% 23% 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.706 0.694 0.683 0.672 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 24% 25% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.806 0.800 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0,718 0.661 0,650 0,640 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0,712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0,512 0.855 0.823 0,792 0.763 0.735 0.708 0.683 0,659 0,636 0.613 0.592 0.572 0.552 0.534 0,516 0.499 0.482 0.467 0.451 0.437 0.423 0.410 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.328 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0.235 0.222 0.210 8 0.731 0.677 0,627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.168 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.162 0.361 0.180 0.167 0.155 0.144 0.134 10 0,676 0.614 0,558 0,508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.149 0.137 0.126 0.116 0.107 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.086 12 0.625 0.557 0.497 0,444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0.076 0.069 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044 15 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.042 0.036 0.032 0.028 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0.018 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0,020 0.017 0.014 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014 0.012 16 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 17 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 20 0.456 0.377 0.312 0.258 0.215. 0.178 0.149 0.124 0.104 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022 0.018 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.01 0.015 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013 21 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.112 0.015 0.013 0,011 0.009 0.011 0.278 0.326 0.262 0.211 22 0.422 0.342 0.226 0.184 0.150 0.123 0.101 0.015 0.013 0.009 0.007 23 0.406 0.170 0.138 0.112 0.012 0.010 0.009 0.007 0.006 24 0.390 0.310 0.247 0.197 0.158 0.126 0.102 ,0.010 0.008 0.007 0.006 0.005 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.009 0.007 0.006 0.005 0.004 0.361 0.281 0.220 0.172 0.268 0.207 0.161 0.333 0.255 0196 0,009 0.007 0,006 0.005 0.004 0.003 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011. 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.004 0.003 0.002 0.002 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0,012 0.009 0,007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 26 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 27 0.347 0.125 28 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016 0.012 0.010 0.008 0.006 0.005 29 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0,048 0.037 0.029 0.022 0.017 0.014 0.011 30 0.308 0.231 0.174 0.131 0.099 0.075 0,057 0.044 0.033 0.026 0.020 0.015 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 search a
Transcribed Image Text:EXHIBIT 14B-1 PreSent Value of $t; a Periods 4% 5% 23% 0.855 0.847 0.840 0.833 0.826 0.820 0.813 0.706 0.694 0.683 0.672 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 24% 25% 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.806 0.800 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0,718 0.661 0,650 0,640 3 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0,712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.564 0.551 0.537 0.524 0,512 0.855 0.823 0,792 0.763 0.735 0.708 0.683 0,659 0,636 0.613 0.592 0.572 0.552 0.534 0,516 0.499 0.482 0.467 0.451 0.437 0.423 0.410 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.386 0.370 0.355 0.341 0.328 6 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.319 0.303 0.289 0.275 0.262 7 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.263 0.249 0.235 0.222 0.210 8 0.731 0.677 0,627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.218 0.204 0.191 0.179 0.168 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.162 0.361 0.180 0.167 0.155 0.144 0.134 10 0,676 0.614 0,558 0,508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.149 0.137 0.126 0.116 0.107 11 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.123 0.112 0.103 0.094 0.086 12 0.625 0.557 0.497 0,444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.102 0.092 0.083 0.076 0.069 13 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.084 0.075 0.068 0.061 0.055 14 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.069 0.062 0.055 0.049 0.044 15 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 0.057 0.051 0.045 0.040 0.035 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.042 0.036 0.032 0.028 0.093 0.080 0.069 0.060 0.052 0.045 0.039 0.034 0.030 0.026 0.023 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.032 0.028 0.024 0.021 0.018 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.027 0.023 0,020 0.017 0.014 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 0.022 0.019 0.016 0.014 0.012 16 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.047 17 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 18 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 19 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 20 0.456 0.377 0.312 0.258 0.215. 0.178 0.149 0.124 0.104 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022 0.018 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.01 0.015 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013 21 0.439 0.359 0.294 0.242 0.199 0.164 0.135 0.112 0.015 0.013 0,011 0.009 0.011 0.278 0.326 0.262 0.211 22 0.422 0.342 0.226 0.184 0.150 0.123 0.101 0.015 0.013 0.009 0.007 23 0.406 0.170 0.138 0.112 0.012 0.010 0.009 0.007 0.006 24 0.390 0.310 0.247 0.197 0.158 0.126 0.102 ,0.010 0.008 0.007 0.006 0.005 25 0.375 0.295 0.233 0.184 0.146 0.116 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010 0.009 0.007 0.006 0.005 0.004 0.361 0.281 0.220 0.172 0.268 0.207 0.161 0.333 0.255 0196 0,009 0.007 0,006 0.005 0.004 0.003 0.098 0.076 0.060 0.047 0.037 0.029 0.023 0.018 0.014 0.011. 0.009 0.007 0.006 0.005 0.004 0.003 0.002 0.004 0.003 0.002 0.002 0.008 0.006 0.005 0.004 0.003 0.002 0.002 0.002 0,012 0.009 0,007 0.005 0.004 0.003 0.003 0.002 0.002 0.001 26 0.135 0.106 0.084 0.066 0.053 0.042 0.033 0.026 0.021 0.017 0.014 0.011 27 0.347 0.125 28 0.150 0.116 0.090 0.069 0.054 0.042 0.033 0.026 0.020 0.016 0.012 0.010 0.008 0.006 0.005 29 0.321 0.243 0.185 0.141 0.107 0.082 0.063 0,048 0.037 0.029 0.022 0.017 0.014 0.011 30 0.308 0.231 0.174 0.131 0.099 0.075 0,057 0.044 0.033 0.026 0.020 0.015 40 0.208 0.142 0.097 0.067 0.046 0.032 0.022 0.015 0.011 0.008 0.005 0.004 0.003 0.002 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 search a
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