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
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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