Foundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]

[The following information applies to the questions displayed below.]

Cardinal Company is considering a five-year project that would require a $2,845,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 12%. The project would provide net operating income in each of five years as follows:

Sales			$	2,869,000
Variable expenses				1,126,000
Contribution margin				1,743,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	709,000
Depreciation		569,000
Total fixed expenses				1,278,000
Net operating income			$	465,000

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

References

Section BreakFoundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]

1.

value: 0.21 points

Required information

Foundational 13-1

Required:

1.

Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

	Sales
	Variable expenses
	Advertising, salaries, and other fixed out-of-pocket costs expenses
	Depreciation expense

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-1Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

2.

value: 0.21 points

Required information

Foundational 13-2

2-a.	What are the projects annual net cash inflows?

2-b.	What is the present value of the projects annual net cash inflows? (Round discount factor to 3 decimal places)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-2Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

3.

value: 0.21 points

Required information

Foundational 13-3

3.	What is the projects net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)

rev: 04_23_2015_QC_CS-13345

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-3Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

4.

value: 0.21 points

Required information

Foundational 13-5

5.	What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-5Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

5.

value: 0.21 points

Required information

Foundational 13-6

6.	What is the projects internal rate of return? (Round your answer to nearest whole percent.)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-6Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

6.

value: 0.21 points

Required information

Foundational 13-7

7.	What is the projects payback period? (Round your answer to 2 decimal places.)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-7Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

7.

value: 0.21 points

Required information

Foundational 13-8

8.	What is the projects simple rate of return for each of the five years? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-8Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

8.

value: 0.21 points

Required information

Foundational 13-9

9.

If the companys discount rate was 14% instead of 12%, would you expect the project's net present value to be higher, lower, or the same?

	Higher
	Lower
	Same

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-9Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

9.

value: 0.21 points

Required information

Foundational 13-10

10.

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the projects payback period to be higher, lower, or the same?

	Higher
	Lower
	Same

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-10Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

10.

value: 0.21 points

Required information

Foundational 13-11

11.

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's net present value to be higher, lower, or the same?

	Higher
	Lower
	Same

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-11Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

11.

value: 0.21 points

Required information

Foundational 13-12

12.

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the projects simple rate of return to be higher, lower, or the same?

	Higher
	Lower
	Same

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-12Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

12.

value: 0.21 points

Required information

Foundational 13-13

13.

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 50%. What was the projects actual net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.)

rev: 04_23_2015_QC_CS-13345

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-13Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

13.

value: 0.21 points

Required information

Foundational 13-14

14.	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 50%. What was the projects actual payback period? (Round your answer to 2 decimal places.)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-14Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

14.

value: 0.27 points

Required information

Foundational 13-15

15.

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 50%. What was the projects actual simple rate of return? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-15Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work