Question
Cardinal Company is considering a project that would require a $2,725,000 investment in equipment with a useful life of five years. At the end of
Cardinal Company is considering a project that would require a $2,725,000 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 14%. The project would provide net operating income each year as follows: |
Sales | $ | 2,867,000 | ||||
Variable expenses | 1,125,000 | |||||
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Contribution margin | 1,742,000 | |||||
Fixed expenses: | ||||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 706,000 | ||||
Depreciation | 465,000 | |||||
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Total fixed expenses | 1,171,000 | |||||
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Net operating income | $ | 571,000 | ||||
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6. | 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.) |
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