In: Accounting
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?