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

Cardinal Company is considering a five-year project that would require a $2,810,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 16%. The project would provide net operating income in each of five years as follows:

Sales			$	2,847,000
Variable expenses				1,121,000
Contribution margin				1,726,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	782,000
Depreciation		562,000
Total fixed expenses				1,344,000
Net operating income			$	382,000

Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using table.

rev: 05_11_2019_QC_CS-168512

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

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If the companys discount rate was 18% instead of 16%, would you expect the project's net present value to be higher, lower, or the same? multiple choice

• Higher

• Lower

• Same

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 multiple choice

• Higher

• Lower

• Same