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

21.

value:
1.00 points

Required information

Required:

1.	Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.)
	Sales Variable expenses Advertising, salaries, and other fixed out-of-pocket costs expenses Depreciation expense

22.

value:
1.00 points

Required information

2.	What are the project’s annual net cash inflows? Annual net cash inflow:

      

23.

value:
1.00 points

Required information

Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table.

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

      

24.

value:
1.00 points

Required information

Click here to view Exhibit 11B-1, to determine the appropriate discount factor(s) using table.
  

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.)

      

25.

value:
1.00 points

Required information

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

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.)

      

26.

value:
1.00 points

Required information

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

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.)

      

27.

value:
1.00 points

Required information

7.	What is the project’s payback period? PROJECTS PAYBACK PERIOD YEARS?  (Round your answer to 2 decimal places.)

      

28.

value:
1.00 points

Required information

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.))

      

29.

value:
1.00 points

Required information

9.	If the company’s discount rate was 18% instead of 16%, would you expect the project's net present value to be higher than, lower than, or the same?
	Higher Same Lower

30.

value:
1.00 points

Required information

10.	If the equipment’s salvage value was $600,000 instead of $400,000, would you expect the project’s payback period to be higher than, lower than, or the same?
	Lower Same Higher

31.

value:
1.00 points

Required information

11.	If the equipment’s salvage value was $600,000 instead of $400,000, would you expect the project's net present value to be higher than, lower than, or the same?
	Same Lower Higher

32.

value:
1.00 points

Required information

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