Kenny Ltd. is considering a project that would require a $2,765,000 investment in equipment with a...
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Kenny Ltd. is considering a project that would require a $2,765,000 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 $200,000. The company's discount rate is 10%. The project would provide net operating income each year as follows: Sales Variable expenses $2,861,000 1,101,000 16 Contribution margin 1,760,000 Fixed expenses: Advertising, salaries and other fixed out-of-pocket costs $705,000 Depreciation 513,000 Total fixed expenses Net operating income 1,218,000 $ 542,000 Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. 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 50%. What was the project's actual net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.) Kenny Ltd. is considering a project that would require a $2,765,000 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 $200,000. The company's discount rate is 10%. The project would provide net operating income each year as follows: Sales Variable expenses $2,861,000 1,101,000 16 Contribution margin 1,760,000 Fixed expenses: Advertising, salaries and other fixed out-of-pocket costs $705,000 Depreciation 513,000 Total fixed expenses Net operating income 1,218,000 $ 542,000 Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. 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 50%. What was the project's actual net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.)
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Kenny Ltd Project Net Present Value with Revised Variable Expense Ratio Revis... View the full answer
Related Book For
Introduction to Managerial Accounting
ISBN: 978-0078025792
7th edition
Authors: Peter Brewer, Ray Garrison, Eric Noreen
Posted Date:
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