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Cardinal Company is considering a project that would require a $2,875,000 investment in equipment with a useful life of five years. At the end of

Cardinal Company is considering a project that would require a $2,875,000 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 $300,000. The companys discount rate is 16%. The project would provide net operating income each year as follows:

Sales $ 2,871,000
Variable expenses 1,018,000

Contribution margin 1,853,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $ 753,000
Depreciation 515,000

Total fixed expenses 1,268,000

Net operating income $ 585,000

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 simple rate of return?

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