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
Fixed Expenses:
Advertising, Salaries, and Other Fixed Costs	$735,000
Depreciation	595,000
Total Fixed Expenses		1,330,000
Net Operating Income		$405,000

2. What are the projects annual net cash inflows?

3. What is the present value of the projects annual net cash inflows?

4. What is the projects net present value?

5. What is the profitability index for this project?

6. What is the projects internal rate of return to the nearest whole percent?

7. What is the projects payback period?

8. What is the project's simple rate of return for each of the five years?

9. If the companys discount rate was 16% instead of 14%, would you expect the projects net present value to be higher than, lower than, or the same as your answer to requirement 4? No computations are necessary.

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 than, lower than, or the same as your answer to requirement 7? No computations are necessary.

11. 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 than, lower than, or the same as your answer to requirement 3? No computations are necessary.

12. 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 than, lower than, or the same as your answer to requirement 8? No computations are necessary.

13. 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 projects actual net present value?

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 projects actual payback period?

15. 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 projects actual net simple rate of return?