Cardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows:

Required:

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's payback period to be higher than, lower than, or the same as your answer to requirement 7? No computations are necessary.

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$2,735,000 Sales.... Variable expenses. . Contribution margin. Fixed expenses: Advertising, salaries, and other out-of- pocket costs ... 1,000,000 1,735,000 $735,000 595,000 .... .. Depreciation..... Total fixed expenses... Operating income.... 1,330,000 $ 405,000