Item4

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Item 4

Cardinal Company is considering a project that would require a $2,810,000 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 $500,000. The companys discount rate is 16%. The project would provide net operating income each year as follows:

Sales					$	2,847,000
Variable expenses						1,121,000
Contribution margin						1,726,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	782,000
Depreciation		462,000
Total fixed expenses						1,244,000
Net operating income					$	482,000

Required: If the equipments salvage value was $700,000 instead of $500,000, what would be the projects simple rate of return? (Round your answer to 2 decimal places.)