Question
Cardinal Company is considering a five-year project that would require a $2,975,000 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 $2,975,000 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 | $ | 2,735,000 | ||
Variable expenses | 1,000,000 | |||
Contribution margin | 1,735,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 735,000 | ||
Depreciation | 595,000 | |||
Total fixed expenses | 1,330,000 | |||
Net operating income | $ | 405,000 | ||
|
2-a. What are the projects annual net cash inflows?
2-b. What is the present value of the projects annual net cash inflows? (Round discount factor to 3 decimal places.)
3. What is the projects net present value? (Round discount factor(s) to 3 decimal places.)
5. What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)
6. What is the projects internal rate of return? (Round your answer to nearest whole percent.)
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