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Cardinal Company is considering a five-year project that would require a $2,975,000 investment in equipment

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Question;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 company?s discount rate is 14%. The project would provide net operating income in each of five years as follows:Sales $ 2,735,000Variable expenses 1,000,000Contribution margin 1,735,000Fixed expenses:Advertising, salaries, and otherfixed out-of-pocket costs $ 735,000Depreciation 595,000Total fixed expenses 1,330,000Net operating income $ 405,000Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.1.value:10.00 pointsRequired: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.)SalesVariable expensesAdvertising, salaries, and other fixed out-of-pocket costs expensesDepreciation expensecheck my workreferencesebook & resources2.value:10.00 points2-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 to 3 decimal places.)check my workreferencesebook & resourceseBook: Compute the simple rate of return for an investment.eBook: Determine the payback period for an investment.eBook: Evaluate the acceptability of an investment project using the internal rate of return method.eBook: Evaluate the acceptability of an investment project using the net present value method.eBook: Rank investment projects in order of preference.3.value:10.00 points3.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.)check my workreferencesebook & resources4.value:10.00 points5.What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)check my workreferencesebook & resources5.value:10.00 points6. What is the project?s internal rate of return? (Round your answer to nearest whole percent.)check my workreferencesebook & resources6.value:10.00 points7. What is the project?s payback period? (Round your answer to 2 decimal places.)check my workreferencesebook & resources7.value:10.00 points8. 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%.)check my workreferencesebook & resources8.value:10.00 points9.If the company?s discount rate was 16% instead of 14%, would you expect the project's net present value to be higher, lower, or the same?HigherLowerSamecheck my workreferencesebook & resources9.value:10.00 points10.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?HigherLowerSamecheck my workreferencesebook & resources10.value:10.00 points11.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?HigherLowerSamecheck my workreferencesebook & resources11.value:10.00 points12.If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project?s simple rate of return to be higher, lower, or the same?SameLowerHighercheck my workreferencesebook & resources12.value:10.00 points13.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 project?s 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.)check my workreferencesebook & resources13.value:10.00 points14.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 project?s actual payback period? (Round your answer to 2 decimal places.)check my workreferencesebook & resources14.value:10.00 points15.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 project?s actual simple rate of return? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)

 

Paper#38531 | Written in 18-Jul-2015

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