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 24% each of the last three years. Casey is considering a capital budgeting project that would require a $5,950,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 20%. The project would provide net operating income each year for five years as follows: Sales $4,200,000
Variable expenses 1,920,000
Contribution margin 2,280,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $780,000
Depreciation 860,000
Total fixed expenses 1,640,000
Net operating income $640,000

Required:
a. What is the project's net present value?
b. What is the project's internal rate of return to the nearest whole percent?
c. What is the project's simple rate of return?
d. Would the company want Casey to pursue this investment opportunity?
e. Would Casey be inclined to pursue this investment opportunity?

Onsider the following subscription behavior information from genie, a web site that provides tools for constructing a family tree (ancestor search). subscriptions cost $9.99 per month, but you are charged for the entire year at the time of purchase. there is a one-year minimum term when you sign up for the service. once purchased, subscriptions are set to renew automatically unless the subscriber cancels them. when a membership renews, it renews for a one-year term and again you are charged for the entire year. there are no variable costs associated with providing this service to an individual customer, but genie does engage in customer relationship activities that they believe will increase customer retention. these customer relationship activities cost genie about $10 per year per customer. based on a sample of 1000 customers that joined genie five years ago, near the time when the company was founded, they were able to determine how many of those customers remained subscribers in the second year, third year etc. based on this information, genie calculated the average annual retention rate to be 20%. genie uses an annual discount rate of 8%. a. last year, genie spent $10,000 placing advertisements on google. genie management believes that these advertisements were responsible for about 300 new subscribers. would you recommend to genie management that they purchase more google ads? b. suppose a newly-introduced loyalty program increases the number of customers that remained to 30%. does this new data change your answer to 9.a? c. do you have any hesitations or concerns about making recommendations to management based on your above estimate of customer lifetime value?

As sales exceed the break‑even point, a high contribution‑margin percentage (a) increases profits faster than does a low contribution-margin percentage (b) increases profits at the same rate as a low contribution-margin percentage (c) decreases profits at the same rate as a low contribution-margin percentage (d) increases profits slower than does a low contribution-margin percentage

If a government accumulates chronic budget deficits over time, what's one possible result? a. a collective action problem b. a debt crisis c. regulatory capture d. an unfunded liability