Question
Cardinal Company is considering a five-year project that would require a $2,765,000 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 $2,765,000 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 | $ 2,851,000 | |
---|---|---|
Variable expenses | 1,150,000 | |
Contribution margin | 1,701,000 | |
Fixed expenses: | ||
Advertising, salaries, and other fixed out-of-pocket costs | $ 670,000 | |
Depreciation | 553,000 | |
Total fixed expenses | 1,223,000 | |
Net operating income | $ 478,000 |
5. What is the profitability index for this project? (Round your answer to 2 decimal places.)
6. What is the projects internal rate of return?
7. What is the projects payback period? (Round your answer to 2 decimal places.)
8. What is the projects simple rate of return for each of the five years? (Round your answer to 2 decimal places.)
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