Question
Cardinal Company is considering a five-year project that would require a $2,750,000 investment in equipment with a useful life of five years and no salvage
Cardinal Company is considering a five-year project that would require a $2,750,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 18%. The project would provide net operating income in each of five years as follows:
Sales | $ | 2,849,000 | ||
Variable expenses | 1,122,000 | |||
Contribution margin | 1,727,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 752,000 | ||
Depreciation | 550,000 | |||
Total fixed expenses | 1,302,000 | |||
Net operating income | $ | 425,000 | ||
Foundational 7-4 (Algo)
4a. What is the projects net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)
4b. What is the project profitability index for this project? (Round your answer to 2 decimal places.)
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