Cardinal Company is considering a project that would require a $2,500,000 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 $200,000. The company's discount rate is 12%. The project would provide net operating income each year as follows: Sales Variable expenses $2,853, 000 1, 200, 000 1,653, 000 Contribution margin Fixed expens es: Advertising, salaries, and other fixed out -of-pocket costs Depreciation Total fixed expenses $790, 000 460, 000 1, 250, 000 $ 403, 000 Net operating income Click here to view Exhibit 10-1 and Exhibit 10-2. to determine the appropriate discount factor(s) using tables. Required: What is the project profitability index for this project? (Round dliscoun

Cardinal Company is considering a project that would require a $2,500,000 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 $200,000. The company's discount rate is 12%. The project would provide net operating income each year as follows: Sales Variable expenses $2,853, 000 1, 200, 000 1,653, 000 Contribution margin Fixed expens es: Advertising, salaries, and other fixed out -of-pocket costs Depreciation Total fixed expenses $790, 000 460, 000 1, 250, 000 $ 403, 000 Net operating income Click here to view Exhibit 10-1 and Exhibit 10-2. to determine the appropriate discount factor(s) using tables. Required: What is the project profitability index for this project? (Round dliscoun

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 4CE: Manzer Enterprises is considering two independent investments: A new automated materials handling...

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Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
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Manzer Enterprises is considering two independent investments: A new automated materials handling system that costs 900,000 and will produce net cash inflows of 300,000 at the end of each year for the next four years. A computer-aided manufacturing system that costs 775,000 and will produce labor savings of 400,000 and 500,000 at the end of the first year and second year, respectively. Manzer has a cost of capital of 8 percent. Required: 1. Calculate the IRR for the first investment and determine if it is acceptable or not. 2. Calculate the IRR of the second investment and comment on its acceptability. Use 12 percent as the first guess. 3. What if the cash flows for the first investment are 250,000 instead of 300,000?
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