Cardinal Company is considering a project that would require a $2,782,000 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 18%. The project would provide net operating income each year as follows: Sales $2,873,000Variable expenses 1,019,000Contribution margin 1,854,000Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs$754,000 Depreciation 516,400 Total fixed expenses 1,270,400Net operating income $583,600 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.)

Simple rate of return is a financial metric used to evaluate the profitability of an investment. It…

Answered: onsidering a project that would require…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Concept explainers

Question

Cardinal Company is considering a project that would require a $2,782,000 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 18%. The project would provide net operating income each year as follows:


Sales			$	2,873,000
Variable expenses				1,019,000
Contribution margin				1,854,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	754,000
Depreciation		516,400
Total fixed expenses				1,270,400
Net operating income			$	583,600

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

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

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.

Similar questions