Cardinal Company is considering a five-year project that would require a $2,800,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 14%. The project would provide net operating income in each of five years as follows:

Sales $2,845,000 Variable expenses 1,109,000 Contribution margin 1,736,000 Fixed expenses: Advertising, salaries, and other out-of-pocket costs$799,000 Depreciation 560,000 Total fixed expenses 1,359,000 Net operating income $377,000

(Hint: Use Microsoft Excel to calculate the discount factor(s).)

Required: 1. Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

check all that apply

• Salesunanswered
• Variable expensesunanswered
• Advertising, salaries, and other fixed out-of-pocket costs expensesunanswered
• Depreciation expense

2-a. What are the projects annual net cash inflows?

2-b. What is the present value of the projects annual net cash inflows? (Round discount factor to 5 decimal)

3. What is the projects net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)

4. What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)

5. What is the projects internal rate of return? (Round your answer to nearest whole percent.)

6. What is the projects payback period? (Round your answer to 2 decimal places.)

7. What is the projects simple rate of return for each of the five years? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)

8. If the companys discount rate was 16% instead of 14%, would you expect the project's net present value to be higher, lower, or the same?

9. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the projects payback period to be higher, lower, or the same?

10. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's net present value to be higher, lower, or the same?