Cardinal Company is considering a project that would require a $2,800,000 investment in equipment with a useful
Question:
Cardinal Company is considering a project that would require a $2,800,000 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 $300,000. The company’s discount rate is 14%. The project would provide net operating income each year as follows: Sales $ 2,845,000 Variable expenses 1,109,000 Contribution margin 1,736,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 799,000 Depreciation 500,000 Total fixed expenses 1,299,000 Net operating income $ 437,000 Required: 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 simple rate of return? (Round your answer to 2 decimal places.) Simple rate of return %
Introduction to Managerial Accounting
ISBN: 978-0078025792
7th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen