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%

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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