Question

Cardinal Company is considering a project that would require a $2,985,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:

  

Sales			$	2,737,000
Variable expenses				1,001,000
Contribution margin				1,736,000
Fixed expenses:
Advertising, salaries, and other     fixed out-of-pocket costs	$	610,000
Depreciation		517,000
Total fixed expenses				1,127,000
Net operating income			$	609,000

4.	What is the present value of the equipment’s salvage value at the end of five years? PRESENT VALUE?(Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.)

5.	What is the project’s net present value? NET PRESENT VALUE? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.)

6.	What is the project profitability index for this project? PROJECTED PROFITABILITY INDEX? (Use the appropriate table to determine the discount factor(s) and final answer to 2 decimal places.)

8.What is the project’s simple rate of return for each of the five years? SIMPLE RATE OF RETURN % (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

12.	If the equipment’s salvage value was $600,000 instead of $400,000, what would be the project’s simple rate of return %? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

Answer 1