Question
Cardinal Company is considering a project that would require a $2,812,000 investment in equipment with a useful life of five years. At the end of
Cardinal Company is considering a project that would require a $2,812,000 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 $400,000. The companys discount rate is 16%. The project would provide net operating income each year as follows: |
Sales | $ | 2,855,000 | ||
Variable expenses | 1,010,000 | |||
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Contribution margin | 1,845,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 798,000 | ||
Depreciation | 482,400 | |||
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Total fixed expenses | 1,280,400 | |||
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Net operating income | $ | 564,600 | ||
The exhibits shows that the Present value of annuity for 16% at 5 yrs is 3.274 and Present value of 1$ is .476
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1.What is the present value of the projects annual net cash inflows? 2.What is the projects net present value? 3.What is the project profitability index for this project 4. |
What is the projects payback period? 8. What is the projects simple rate of return for each of the five years? 9.
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