Question
Cardinal Company is considering a five-year project that would require a $2,805,000 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 $2,805,000 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 | $ 2,741,000 | |
---|---|---|
Variable expenses | 1,125,000 | |
Contribution margin | 1,616,000 | |
Fixed expenses: | ||
Advertising, salaries, and other fixed out-of-pocket costs | $ 642,000 | |
Depreciation | 561,000 | |
Total fixed expenses | 1,203,000 | |
Net operating income | $ 413,000 |
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?
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?
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