Question
Cardinal Company is considering a five-year project that would require a $3,025,000 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 $3,025,000 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 | $ | 2,737,000 | ||
Variable expenses | 1,001,000 | |||
Contribution margin | 1,736,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 610,000 | ||
Depreciation | 605,000 | |||
Total fixed expenses | 1,215,000 | |||
Net operating income | $ | 521,000 | ||
Required:
1. Which item(s) in the income statement shown above will not affect cash flows?
- Salesunchecked
- Variable expenses
- Advertising, salaries, and other fixed out-of-pocket costs expenses
- Depreciation expense
2. What are the projects annual net cash inflows and project's net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)
3. What is the present value of the projects annual net cash inflows? (Round your final answer to the nearest whole dollar amount.)
4. What is the project profitability index for this project? (Round your answer to 2 decimal places.)
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