Cardinal Company is considering a five-year project that would require a $2,812,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 16%. The project would provide net operating income in each of five years as follows:

Sales			$	2,855,000
Variable expenses				1,010,000
Contribution margin				1,845,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	798,000
Depreciation		562,400
Total fixed expenses				1,360,400
Net operating income			$	484,600

1. Which item(s) in the income statement shown above will not affect cash flows?

• 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. If the companys discount rate was 18% instead of 16%, would you expect the project's net present value to be higher, lower, or the same?

• Higher

• Lower

• Same

• 6. 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?

  Higher

• Lower

• Same

• 7. 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 net present value?