Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![Required information
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a
useful life of five years and no salvage value. The company's discount rate is 12%. 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
$2,739,000
1, 100,000
1, 639,000
$641,000
578,000
1, 219,000
Net operating income
%$4
$ 420,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
7. What is the project's payback period? (Round your answer to 2 decimal places.)
Project's payback period
уears](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8c845cf8-3d77-4ddd-9d5a-2a560adfc5de%2F1124bc5a-3384-42df-b6d5-45836bad031d%2F8ricqhdj_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required information
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,890,000 investment in equipment with a
useful life of five years and no salvage value. The company's discount rate is 12%. 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
$2,739,000
1, 100,000
1, 639,000
$641,000
578,000
1, 219,000
Net operating income
%$4
$ 420,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
7. What is the project's payback period? (Round your answer to 2 decimal places.)
Project's payback period
уears
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