Question

Cardinal Company is considering a five-year project that would require a $3,025,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16%. The project would provide net operating income in each of five years 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 $605,000

Total fixed expenses $1,215,000

Net operating income $521,000

3. What is the present value of the project's annual net cash inflows? (Round your final answer to the nearest whole dollar amount.)

Answer 1

	Annual Net Cash Inflows =Net Operating Income + Depreciation expenses
	Annual Net Cash Inflows =$521,000 + $605,000 =$1,126,000
Years	Net Cash Inflows	Discount Factor @16%	PV of Cash Flows at 16%
1	$                                                                              1,126,000	0.86207	$                         970,691
2	$                                                                              1,126,000	0.74316	$                         836,798
3	$                                                                              1,126,000	0.64066	$                         721,383
4	$                                                                              1,126,000	0.55229	$                         621,879
5	$                                                                              1,126,000	0.47611	$                         536,100
	Total of PV of CashFlows		$                      3,686,851
	There may be rounding off errors due to 5 decimal points rounding in Discount factor