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 22% each of the last three years. Casey is considering a capital budgeting project that would require a $3,900,000 investment in equipment with a useful life of five years and no salvage value. Pigeon Company’s discount rate is 18%. The project would provide net operating income each year for five years as follows:

Sales $ 3,800,000
Variable expenses 1,760,000
Contribution margin 2,040,000
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs $ 740,000
Depreciation 780,000
Total fixed expenses 1,520,000
Net operating income $ 520,000

1. What is the project’s net present value?
2. What is the project’s internal rate of return to the nearest whole percent?