Cardinal Company is considering a five-year project that would require a $3,025,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16%. The project would provide net operating income in each of five years as follows:

Sales				$	2,737,000
Variable expenses					1,001,000
Contribution margin					1,736,000
Fixed expenses:
Advertising, salaries, and other out-of-pocket costs	$	610,000
Depreciation		605,000
Total fixed expenses					1,215,000
Net operating income				$	521,000

(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?

check all that apply

Sales

Variable expenses unanswered

Advertising, salaries, and other fixed out-of-pocket costs expenses unanswered

Depreciation expense unanswered

2-a. What are the project's annual net cash inflows?

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

3. What is the project's 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 project's internal rate of return? (Round your answer to nearest whole percent.)

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

7. What is the project's 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 company's discount rate was 18% instead of 16%, would you expect the project's net present value to be higher, lower, or the same?

multiple choice

Higher

Lower

Same

9. 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, lower, or the same?

multiple choice

Higher

Lower

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?

multiple choice

Higher

Lower

Same