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

Sales $2,735,000

Variable Expenses 1,000,000

Contribution Margin $1,735,000

Fixed Expenses:

Advertising , salaries, and other fixed out of pocket costs $735,000

Depreciation $995,000

Total Fixed expenses $1,330,000

Net Operating Income $405,000

1. WHICH ITEM(S) IN THE INCOME STATEMENT AFFECT CASH FLOWS?

2. WHAT ARE THE PROJECT'S ANNUAL NET CASH INFLOWS?

3. WHAT IS THE PRESENT VALUE OF THE PROJECT'S NET PRESENT VALUE?

4. WHAT IS THE PROJECT'S NET PRESENT VALUE?

5. WHAT IS THE PROJECT PROFITABILITY INDEX FOR THIS PROJECT? (ROUND YOUR ANSWER TO THE NEAREST WHOLE PERCENT).

6.WHAT IS THE PROJECT INTERNAL RATE OF RETURN TO THE NEAREST WHOLE PERCENT?

7. WHAT IS THE PROJECT 'S PAYBACK PERIOD?

8, WHAT IS THE PROJECT'S SIMPLE RATE OF RETURN FOR EACH OF THE FIVE YEARS?

9. IF THE COMPANY'S DISCOUNT RATE WAS 16% INSTEAD OF14%, WOULD YOU EXPECT THE PROJECT'S NET PRESENT VALUE TO BE HIGHER THAN, LOWER THAN, OR THE SAME AS YOUR ANSWER TO REQUIREMENT 4? NO COMPUTATION NECESSARY.

10. IF THE EQUIPMENT HAS 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 COMPUTATION NECESSARY.

11. IF THE EQUIPMENT HAS 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 3? NO COMPUTATION NECESSARY.

12. IF THE EQUIPMENT HAS A SALVAGE VALUE OF $300,000 AT THE END OF FIVE YEARS, WOULD YOU EXPECT THE PROJECT'S PAYBACK TO BE HIGHER THAN, LOWER THAN, OR THE SAME AS YOUR ANSWER TO REQUIREMENT 8? NO COMPUTATION NECESSARY.

13. ASSUME A POST AUDIT SHOWED THAT ALL ESTIMATES (INCLUDING TOTAL SALES) WERE EXACTLY CORRECT EXCEPT FOR THE VARIABLE EXPENSE RATIO, WHICH ACTUALLY TURNS OUT TO BE 45%. WHAT WAS THE PROJECTS NET PRESENT VALUE?

14. ASSUME A POST AUDIT SHOWED THAT ALL ESTIMATES (INCLUDING TOTAL SALES) WERE EXACTLY CORRECT EXCEPT FOR THE VARIABLE EXPENSE RATIO, WHICH ACTUALLY TURNED OUT TO BE 45%. WHAT WAS THE PROJECT'S ACTUAL PAYBACK PERIOD?

15. ASSUME A POST AUDIT SHOWED THAT ALL ESTIMATES (INCLUDING TOTAL SALES) WERE ACTUALLY CORRECT EXCEPT FOR THE VARIABLE EXPENSE RATIO, WHICH ACTUALLY TURNED OUT TO BE 45%. WHAT WAS THE PROJECT'S ACTUAL SIMPLE RATE OF RETURN?

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