Cardinal Company is considering a five-year project that would require a $2,765,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 670,000 553,000 $ 2,851,000 1,150,000 1,701,000 1,223,000 $ 478,000
Cardinal Company is considering a five-year project that would require a $2,765,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income $ 670,000 553,000 $ 2,851,000 1,150,000 1,701,000 1,223,000 $ 478,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:8. What is the project's simple rate of return for each of the five years? (Round your answer to 2 decimal places.)
Simple rate of return
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%
Not present value
C
13. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio,
which actually turned out to be 50%. What was the project's actual net present value? (Negative amount should be indicated by a
minus sign. Round intermediate calculations and final answer to the nearest whole dollar amount.)
Transcribed Image Text:Cardinal Company is considering a five-year project that would require a $2,765,000 investment in equipment with a
useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating
income in each of five years as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed
out-of-pocket costs
Depreciation
Total fixed expenses
Net operating income
$ 670,000
553,000
$ 2,851,000
1,150,000
1,701,000
1,223,000
$ 478,000
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