Question
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 | ||
|
| |||
|
12. | 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. (i.e 0.1234 should be entered as 12.34.)) Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
|
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started