Cardinal Company is considering a project that would require a $2,750,000 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 18%. The project would provide net operating income each year as follows:

Sales			$	2,849,000
Variable expenses				1,122,000
Contribution margin				1,727,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	752,000
Depreciation		470,000
Total fixed expenses				1,222,000
Net operating income			$	505,000

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables

http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-1.JPG

http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-2.JPG

1

What is the project profitability index for this project? (Use the appropriate table to determine the discount factor(s) and final answer to 2 decimal places.)

2. If the equipments salvage value was $600,000 instead of $400,000, what would be the projects simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

3.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

.

Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the projects actual net present value? (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.)