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Cardinal Company is considering a project that would require a $2,765,000 investment in equipment with a useful life of five years. At the end of
Cardinal Company is considering a project that would require a $2,765,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $200,000. The companys discount rate is 12%. The project would provide net operating income each year as follows:
Sales | $ | 2,861,000 | ||||
Variable expenses | 1,101,000 | |||||
Contribution margin | 1,760,000 | |||||
Fixed expenses: | ||||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 705,000 | ||||
Depreciation | 513,000 | |||||
Total fixed expenses | 1,218,000 | |||||
Net operating income | $ | 542,000 | ||||
Required: If the equipments salvage value was $400,000 instead of $200,000, what would be the projects simple rate of return? (Round your answer to 2 decimal places.)
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