Cardinal Company is considering a five-year project that would require a $3,025,000 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				$	2,737,000
Variable expenses					1,001,000
Contribution margin					1,736,000
Fixed expenses:
Advertising, salaries, and other out-of-pocket costs	$	610,000
Depreciation		605,000
Total fixed expenses					1,215,000
Net operating income				$	521,000

(Hint: Use Microsoft Excel to calculate the discount factor(s).)

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.)

check all that apply

• Sales
• Variable expenses
• Advertising, salaries, and other fixed out-of-pocket costs expenses
• Depreciation expense

2-a.What are the project's annual net cash inflows?

2-b.What is the present value of the project's annual net cash inflows?(Round discount factor to5 decimal places)

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

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

5.What is the project's internal rate of return?(Round your answer to nearest whole percent.)

6.What is the project's payback period?(Round your answer to 2 decimal places.)

7.What is the project's 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%.)

8.If the company's discount rate was 18% instead of 16%, would you expect the project's net present value to be higher, lower, or the same?

multiple choice

• Higher
• Lower

Same

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

multiple choice

• Higher
• Lower

Same

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

multiple choice

• Higher
• Lower

Same