project's payback period
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Required information
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,975,000 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:
$ 2,735,000
1,000,000
1,735,000
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-
of-pocket costs
Depreciation
Total fixed expenses
$ 735,000
595,000
1,330,000
$ 405,000
Net operating income
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
10. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's payback period to be
higher, lower, or the same?
O Higher
O Lower
O Same](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fda625b26-af5c-4d40-b5ca-dba856450987%2F55201abf-8040-4aba-9b79-cd3893819fd0%2Fpzutmf8_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 $2,975,000 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:
$ 2,735,000
1,000,000
1,735,000
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-
of-pocket costs
Depreciation
Total fixed expenses
$ 735,000
595,000
1,330,000
$ 405,000
Net operating income
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
10. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's payback period to be
higher, lower, or the same?
O Higher
O Lower
O Same
![Required information
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,975,000 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:
$ 2,735,000
1,000,000
1,735,000
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-
of-pocket costs
Depreciation
Total fixed expenses
$ 735,000
595,000
1,330,000
$ 405,000
Net operating income
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
11. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's net present value to be
higher, lower, or the same?
O Higher
O Lower
O Same](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fda625b26-af5c-4d40-b5ca-dba856450987%2F55201abf-8040-4aba-9b79-cd3893819fd0%2F0nbgvyj_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 $2,975,000 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:
$ 2,735,000
1,000,000
1,735,000
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-
of-pocket costs
Depreciation
Total fixed expenses
$ 735,000
595,000
1,330,000
$ 405,000
Net operating income
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
11. If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's net present value to be
higher, lower, or the same?
O Higher
O Lower
O Same
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
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
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education