The Foundational 15 (Algo) [LC LO12-5, [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,800,000 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: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation $799,000 560,000 $ 2,845,000 1,109,000 1,736,000
The Foundational 15 (Algo) [LC LO12-5, [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,800,000 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: Sales Variable expenses Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation $799,000 560,000 $ 2,845,000 1,109,000 1,736,000
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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A2
![Required information
The Foundational 15 (Algo) [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6]
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,800,000 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:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed
out-of-pocket costs
Depreciation
Total fixed expenses
Net operating income
Foundational 12-14 (Algo)
$799,000
560,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
Payback period
$ 2,845,000
1,109,000
1,736,000
years
1,359,000
$ 377,000
14. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio,
which actually turned out to be 45%. What was the project's actual payback period? (Round your answer to 2 decimal places.)](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff96beba6-2919-4d0e-b7ed-499fbd5790bd%2F669448ff-b9b8-4acf-bb46-50de9c3d7b2d%2Fzuv206_processed.png&w=3840&q=75)
Transcribed Image Text:Required information
The Foundational 15 (Algo) [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6]
[The following information applies to the questions displayed below.]
Cardinal Company is considering a five-year project that would require a $2,800,000 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:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed
out-of-pocket costs
Depreciation
Total fixed expenses
Net operating income
Foundational 12-14 (Algo)
$799,000
560,000
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
Payback period
$ 2,845,000
1,109,000
1,736,000
years
1,359,000
$ 377,000
14. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio,
which actually turned out to be 45%. What was the project's actual payback period? (Round your answer to 2 decimal places.)
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