Cardinal Company is considering a five-year project that would require a $2,800,000 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			$	2,845,000
Variable expenses				1,109,000
Contribution margin				1,736,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	799,000
Depreciation		560,000
Total fixed expenses				1,359,000
Net operating income			$	377,000

1.

Required information

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.)

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

2-a.	What are the projects annual net cash inflows?

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

3.	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

Required information

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? (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 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? (Round your answer to 2 decimal places.)

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