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 23% each of the last three years. Casey is considering a capital budgeting project that would require a $ 4,000,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales $3,900,000 Variable expenses 1,800,000 Contribution margin 2, 100, 000 Fixed expenses: Advertising, salaries, and other fixed out-of- pocket costs $750,000 Depreciation 800, 000 Total fixed expenses 1,550,000 Net operating income $ 550,000 What is the project's internal rate of return to the nearest whole percent?

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 23% each of the last three years. Casey is considering a capital budgeting project that would require a $ 4,000,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company's discount rate is 19%. The project would provide net operating income each year for five years as follows: Sales $3,900,000 Variable expenses 1,800,000 Contribution margin 2, 100, 000 Fixed expenses: Advertising, salaries, and other fixed out-of- pocket costs $750,000 Depreciation 800, 000 Total fixed expenses 1,550,000 Net operating income $ 550,000 What is the project's internal rate of return to the nearest whole percent?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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