Question
Cardinal Company is considering a five-year project that would require a $2,915,000 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 $2,915,000 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 | $ | 2,863,000 | ||
Variable expenses | 1,014,000 | |||
Contribution margin | 1,849,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 781,000 | ||
Depreciation | 583,000 | |||
Total fixed expenses | 1,364,000 | |||
Net operating income | $ | 485,000 | ||
Required:
1. Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
- Sales
- Variable expenses
- Advertising, salaries, and other fixed out-of-pocket costs expenses
- Depreciation expense
5. What is the project profitability index for this project? (Round your answer to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started