Question
Cardinal Company is considering a project that would require a $2,745,000 investment in equipment with a useful life of five years. At the end of
Cardinal Company is considering a project that would require a $2,745,000 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 $500,000. The companys discount rate is 18%. The project would provide net operating income each year as follows: Sales $ 2,857,000 Variable expenses 1,011,000 Contribution margin 1,846,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 799,000 Depreciation 449,000 Total fixed expenses 1,248,000 Net operating income $ 598,000 What is the present value of the projects annual net cash inflows?
What is the present value of the equipments salvage value at the end of five years?
What is the projects net present value?
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