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%. all sales are collected in cash, all variable expenses are paid in cash during the year they are incurred, and all out-of-pocket fixed expenses are paid in cash during the year they are incurred. the project would provide net operating income each year for five years as follows:

a. Compute the project's net present value.

b. Compute the project's internal rate of return.

Explanation:

we need to calculate the net cash flows = net operating income + depreciation expense = $300,000 + $600,000 = $900,000

now we need to determine the net present value (NPV):

Using an excel spreadsheet and the NPV function with  16% discount rate:

NPV = discounted cash flows - initial investment = $2,946,864.29

- $3,500,000 = -$553,135.71

We can also calculate the internal rate of return using excel and the IRR function:

IRR = 9.01%

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.