Cardinal Company is considering a project that would require a $2,890,000 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 $ 2,739,000 Variable expenses 1,100,000 Contribution margin 1,639,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 641,000 Depreciation 538,000 Total fixed expenses 1,179,000 Net operating income $ 460,000 Required: If the equipment's salvage value was $400,000 instead of $200,000, what would be the project's simple rate of return? (Round your answer to 2 decimal places.)
Cardinal Company is considering a project that would require a $2,890,000 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 $ 2,739,000 Variable expenses 1,100,000 Contribution margin 1,639,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 641,000 Depreciation 538,000 Total fixed expenses 1,179,000 Net operating income $ 460,000 Required: If the equipment's salvage value was $400,000 instead of $200,000, what would be the project's simple rate of return? (Round your answer to 2 decimal places.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please Correct answer With Explanation And do Not Give solution in image format
Transcribed Image Text:Cardinal Company is considering a project that would require a $2,890,000 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 $ 2,739,000 Variable expenses 1,100,000 Contribution
margin 1,639,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 641,000
Depreciation 538,000 Total fixed expenses 1,179,000 Net operating income $ 460,000 Required: If the
equipment's salvage value was $400,000 instead of $200,000, what would be the project's simple rate of
return? (Round your answer to 2 decimal places.)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education