Cardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 14%. The project would provide net operating income in each of five years as follows:

Sales		$2,735,000
Variable expenses		$1,000,000
Contribution margin		$1,735,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$735,000
Depreciation	$595,000
Total fixed expenses		$1,330,000
Net operating income		$405,000

1. Required:

Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)

Sales

Variable expenses

Advertising, salaries, and other fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the projects annual net cash inflows?

3.

What is the present value of the projects annual net cash inflows? (Round discount factor to 3 decimal places.)

4.

What is the projects net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)

5.

What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)

6.

What is the projects internal rate of return? (Round your answer to nearest whole percent.)

7.

What is the projects payback period? (Round your answer to 2 decimal places.)

8.

What is the projects simple rate of return for each of the five years? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)

9.

If the companys discount rate was 16% instead of 14%, would you expect the project's net present value to be higher, lower, or the same?

Higher

Lower

Same

10.

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the projects payback period to be higher, lower, or the same?

	Higher
	Lower
	Same

11.

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project's net present value to be higher, lower, or the same?

	Higher
	Lower
	Same

12.

If the equipment had a salvage value of $300,000 at the end of five years, would you expect the projects simple rate of return to be higher, lower, or the same?

	Higher
	Lower
	Same

13.

Assume a post audit 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 projects actual net present value?(Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.)

14.

Assume a post audit 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 projects actual payback period? (Round your answer to 2 decimal places.)

15.

Assume a post audit 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 projects actual simple rate of return? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)