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Cardinal Company is considering a five-year project that would require a $2,915,000 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		$ 2,746,000
Variable expenses		1,126,000
Contribution margin		1,620,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$ 615,000
Depreciation	583,000
Total fixed expenses		1,198,000
Net operating income		$ 422,000

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

1. Which item(s) in the income statement shown above will not affect cash flows?

Sales

Variable expenses

Advertising, salaries, and other fixed out-of-pocket costs expenses

Depreciation expense

2. What are the projects annual net cash inflows?

3. What is the present value of the projects annual net cash inflows? (Round your final answer to the nearest whole dollar amount.)

4. What is the projects net present value? (Round final answer to the nearest whole dollar amount.)

5. What is the profitability index for this project? (Round your answer to 2 decimal places.)

6. What is the projects internal rate of return? (%)

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.) (%)

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.)