Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a
Question:
Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 16%. The project would provide net operating income in each of five years as follows:
Sales | $ | 2,871,000 | ||
Variable expenses | 1,018,000 | |||
Contribution margin | 1,853,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 753,000 | ||
Depreciation | 591,000 | |||
Total fixed expenses | 1,344,000 | |||
Net operating income | $ | 509,000 | ||
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
rev: 05_11_2019_QC_CS-168512
Required:
1. 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. Any boxes left with a question mark will be automatically graded as incorrect.)
- Sales unanswered
- Variable expenses unanswered
- Advertising, salaries, and other fixed out-of-pocket costs expenses unanswered
- Depreciation expense unanswered
2. What are the project’s annual net cash inflows?
3. What is the present value of the project’s annual net cash inflows?
4. What is the project’s net present value?
5. What is the project profitability index for this project?