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Cardinal Company is considering a five-year project requiring a $2,755,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 14%. The project would provide net operating income in each of five years as follows:

Sales		$ 2,875,000
Variable expenses		1,124,000
Contribution margin		1,751,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 721,000
Depreciation	551,000
Total fixed expenses		1,272,000
Net operating income		$ 479,000

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.

6. What is the projects internal rate of return?

7. What is the projects payback period?

8. What is the projects simple rate of return for each of the five years?

9. If the companys discount rate was 16% instead of 14%, would you expect the project's net present value to be higher, lower, or the same?

10. 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?

11. 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?