Question

In: Accounting

Cardinal Company is considering a project that would require a $2,810,000 investment in equipment with a...

Cardinal Company is considering a project that would require a $2,810,000 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 $500,000. The company’s discount rate is 16%.

The project would provide net operating income each year 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 462,000

Total fixed expenses 1,244,000

Net operating income $ 482,000

What is the present value of the project’s annual net cash inflows?

What is the present value of the equipment’s salvage value at the end of five years?

What is the project’s net present value?

What is the project profitability index for this project?

What is the project’s simple rate of return for each of the five years?

If the equipment’s salvage value was $700,000 instead of $500,000, what would be the project’s simple rate of return?

Assume a post audit 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 project’s actual net present value?

Assume a post audit 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 project’s actual payback period?

Assume a post audit 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 project’s actual simple rate of return?

Solutions

Expert Solution

Please Revert for any clarifications


Related Solutions

Cardinal Company is considering a project that would require a $2,985,000 investment in equipment with a...
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...
Cardinal Company is considering a project that would require a $2,985,000 investment in equipment with a...
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...
Cardinal Company is considering a project that would require a $2,810,000 investment in equipment with a...
Cardinal Company is considering a project that would require a $2,810,000 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 $500,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:      Sales $ 2,847,000      Variable expenses 1,121,000      Contribution margin 1,726,000      Fixed expenses:   Advertising, salaries, and other     fixed...
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,739,000 Variable expenses 1,100,000 Contribution margin 1,639,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 641,000 Depreciation 578,000 Total fixed expenses 1,219,000 Net operating income $ 420,000 3. What is...
Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales $ 2,865,000 Variable expenses 1,015,000 Contribution margin 1,850,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 750,000 Depreciation 591,000 Total fixed expenses 1,341,000 Net operating income $ 509,000 6. What is...
Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,853,000 Variable expenses 1,200,000 Contribution margin 1,653,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 790,000 Depreciation 500,000 Total fixed expenses 1,290,000 Net operating income $ 363,000 3. What is...
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows:   Sales $ 2,861,000      Variable expenses 1,101,000      Contribution margin 1,760,000      Fixed expenses:   Advertising, salaries, and other     fixed out-of-pocket costs $ 705,000   Depreciation 574,000   Total fixed expenses 1,279,000      Net operating income $...
Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,853,000 Variable expenses 1,200,000 Contribution margin 1,653,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 790,000 Depreciation 500,000 Total fixed expenses 1,290,000 Net operating income $ 363,000 1.If the equipment...
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,739,000 Variable expenses 1,100,000 Contribution margin 1,639,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 641,000 Depreciation 578,000 Total fixed expenses 1,219,000 Net operating income $ 420,000 part 1. If...
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with...
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,861,000 Variable expenses 1,101,000 Contribution margin 1,760,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 705,000 Depreciation 574,000 Total fixed expenses 1,279,000 Net operating income $ 481,000 Click here to...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT