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 opera income in each of five years as follows: Sales Variable expenses $ 2,851,000 1,150,000 Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs $ 670,000 Depreciation 553,000 Total fixed expenses 1,701,000 Net operating income 1,223,000 $ 478,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
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 opera income in each of five years as follows: Sales Variable expenses $ 2,851,000 1,150,000 Contribution margin Fixed expenses: Advertising, salaries, and other fixed out- of-pocket costs $ 670,000 Depreciation 553,000 Total fixed expenses 1,701,000 Net operating income 1,223,000 $ 478,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Gadubhai
![The Foundational 15 (Algo) [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6]
[The following information applies to the questions displayed below.]
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
$ 2,851,000
1,150,000
1,701,000
Fixed expenses:
Advertising, salaries, and other fixed out-
of-pocket costs
$ 670,000
Depreciation
553,000
Total fixed expenses
Net operating income
1,223,000
$ 478,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using table.
Foundational 12-13 (Algo)
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.)
Net present value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F9fc544ef-fb42-4ccc-bd92-e32e9d69ef6a%2F682a7cb4-1ea7-46df-bf85-fdf07fd5c2f6%2Fkzdp1bh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The Foundational 15 (Algo) [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6]
[The following information applies to the questions displayed below.]
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
$ 2,851,000
1,150,000
1,701,000
Fixed expenses:
Advertising, salaries, and other fixed out-
of-pocket costs
$ 670,000
Depreciation
553,000
Total fixed expenses
Net operating income
1,223,000
$ 478,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2. to determine the appropriate discount factor(s) using table.
Foundational 12-13 (Algo)
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.)
Net present value
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