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 $300,000. The companys discount rate is 14%. The project would provide net operating income each year as follows: |
Sales | $ | 2,851,000 | |||||||||||||||||||||||||||||
Variable expenses | 1,150,000 | ||||||||||||||||||||||||||||||
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Contribution margin | 1,701,000 | ||||||||||||||||||||||||||||||
Fixed expenses: | |||||||||||||||||||||||||||||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 670,000 | |||||||||||||||||||||||||||||
Depreciation | 493,000 | ||||||||||||||||||||||||||||||
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Total fixed expenses | 1,163,000 | ||||||||||||||||||||||||||||||
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Net operating income | $ | 538,000 | |||||||||||||||||||||||||||||
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