Cardinal Company is considering a project that would require a $2,805,000 investment in equipment with a useful life of five years. Atthe end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company'sdiscount rate is 14%. The project would provide net operating income each year as follows:$2,741,0001,125,0001,616,000SalesVariable expensesContribution marginFixed expenses:Advertising, salaries, and other fixed out-of-pocket costs $ 642,000DepreciationTotal fixed expenses481,0001,123,000$ 493,000Net operating incomeClick here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.Required:What is the present value of the equipment's salvage value at the end of five years? (Round discount factor(s) to 3 decimal placesand final answer to the nearest dollar amount.)Present value

Given information is: Salvage value = $400,000 Discount rate = 14%

Required: What is the present value of the equipment's salvage value at the end of five years? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.) Present value

Required: What is the present value of the equipment's salvage value at the end of five years? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.) Present value

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Cardinal Company is considering a project that would require a $2,805,000 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 $400,000. The company's
discount rate is 14%. The project would provide net operating income each year as follows:
$2,741,000
1,125,000
1,616,000
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $ 642,000
Depreciation
Total fixed expenses
481,000
1,123,000
$ 493,000
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 present value of the equipment's salvage value at the end of five years? (Round discount factor(s) to 3 decimal places
and final answer to the nearest dollar amount.)
Present value

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