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

Cardinal Company is considering a five-year project that would require 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

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

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)

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.)

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.)

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

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

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%.)

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 projects payback period 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 project's net present value to be higher, lower, or the same?

Higher

Lower

same

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

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.)

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.)

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%.)