Question
[The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,850,000 investment in equipment with
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,850,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 18%. The project would provide net operating income in each of five years as follows:
Sales | $ 2,857,000 | |
---|---|---|
Variable expenses | 1,011,000 | |
Contribution margin | 1,846,000 | |
Fixed expenses: | ||
Advertising, salaries, and other fixed out-of-pocket costs | $ 799,000 | |
Depreciation | 570,000 | |
Total fixed expenses | 1,369,000 | |
Net operating income | $ 477,000 |
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
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.)
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