Casey Nelson is a divisional manager for Pigeon Company. His annual pay raises are largely determined by his divisionâs 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 Companyâs discount rate is 16%. The project would provide net operating income each year for five years as follows:
1. What is the projectâs net present value?
2. What is the projectâs internal rate of return to the nearest whole percent?
3. What is the projectâs 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.