Question
Managerial Accounting Question: Cardinal Company is considering a project that would require a $2,750,000 investment in equipment with a useful life of five years. At
| Managerial Accounting Question: Cardinal Company is considering a project that would require a $2,750,000 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 18%. The project would provide net operating income each year as follows: |
| Sales | $ | 2,849,000 | ||
| Variable expenses | 1,122,000 | |||
| Contribution margin | 1,727,000 | |||
| Fixed expenses: | ||||
| Advertising, salaries, and other fixed out-of-pocket costs | $ | 752,000 | ||
| Depreciation | 470,000 | |||
| Total fixed expenses | 1,222,000 | |||
| Net operating income | $ | 505,000 | ||
16. Required information
| Required: |
| 1. | Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.) |
| Sales |
| Variable expenses |
| Advertising, salaries, and other fixed out-of-pocket costs expenses |
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eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.
17. Required information
| 2. | What are the projects annual net cash inflows? |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
18. Required information
Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table.
| 3. | What is the present value of the projects annual net cash inflows? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
19. Required information
Click here to view Exhibit 11B-1, to determine the appropriate discount factor(s) using table.
| 4. | What is the present value of the equipments salvage value at the end of five years? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
20. Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 5. | What is the projects net present value? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
21. Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 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.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
22. Required information
| 7. | What is the projects payback period? (Round your answer to 2 decimal places.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
23. Required information
| 8. | What is the projects simple rate of return for each of the five years? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
24. Required information
| 9. | If the companys discount rate was 20% instead of 18%, would you expect the project's net present value to be higher than, lower than, or the same? | |||
|
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
25. Required information
| 10. | If the equipments salvage value was $600,000 instead of $400,000, would you expect the projects payback period to be higher than, lower than, or the same? | |||
|
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
26. Required information
| 11. | If the equipments salvage value was $600,000 instead of $400,000, would you expect the project'snet present value to be higher than, lower than, or the same? | |||
|
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
27. Required information
| 12. | If the equipments salvage value was $600,000 instead of $400,000, 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.)) |
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eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
28. Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 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 45%. What was the projects actual net present value? (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
29. Required information
| 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 45%. What was the projects actual payback period? (Round your answer to 2 decimal places.) |
eBook & Resources eBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.Check my work
30. Required information
| 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 45%. What was the projects actual simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) |
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Entrepreneurship
Authors: Andrew Zacharakis, William D Bygrave
5th Edition
1119563097, 9781119563099
