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Cardinal Company is considering a five-year project that would require a $2,850,000 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 $2,850,000 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 | $ | 2,857,000 | ||
Variable expenses | 1,011,000 | |||
Contribution margin | 1,846,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 799,000 | ||
Depreciation | 570,000 | |||
Total fixed expenses | 1,369,000 | |||
Net operating income | $ | 477,000 | ||
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 45%. What was the projects actual simple rate of return? (Round your answer to 2 decimal places.) |
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