Cardinal Company is considering a five-year project that would require a $2,915,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 12%. The project would provide net operating income in each of five years as follows:

Sales		$ 2,746,000
Variable expenses		1,126,000
Contribution margin		1,620,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 615,000
Depreciation	583,000
Total fixed expenses		1,198,000
Net operating income		$ 422,000

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.

Foundational 12-1 (Algo)

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.)

_ Sales

_Variable expenses

_Advertising, salaries, and other fixed out-of-pocket costs expenses

_Depreciation expense

2. What are the projects annual net cash inflows?

3. What is the present value of the projects annual net cash inflows?

4. What is the projects net present value?

5. What is the profitability index for this project?

6. What is the projects internal rate of return?

7. What is the projects payback period?

8. What is the projects simple rate of return for each of the five years?

9. If the companys discount rate was 14% instead of 12%, would you expect the project's net present value 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 projects payback period to be higher, lower, or the same?

11. 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?

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

13. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projects actual net present value? (Negative amount should be indicated by a minus sign. Round intermediate calculations and final answer to the nearest whole dollar amount.)

14. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projects actual payback period? (Round your answer to 2 decimal places.)

15. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projects actual simple rate of return? (Round your answer to 2 decimal places.)