Please explain how to do these. Cardinal Company is considering a project that w

Question

Please explain how to do these.

Cardinal Company is considering a project that would require a $2,800,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $300,000. The company's discount rate is 14%. The project would provide net operating income each year as follows 2,845,000 Sales 1,109,000 Variable expenses Contribution margin 1,736,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $799,000 500,000 Depreciation 1,299,000 Total fixed expenses 437,000 Net operating income Click here to view Exhib t 1 1B and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables Required What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.) Project profitability index

Explanation / Answer

Q1) PV of Cash Inflow = (437000+500,000)PVIFA(14%,5) + 300,000PVIF(14%,5) = $3372421

project Profitabilty Index = 3,372,421/2,800,000 = 1.20

Q2) Actual NPV = 755,500PVIFA(14%,5) + 300,000PVIF(14%,5) - 2,765,000 = - $15669

Net Present value = $ - 15669

Q3) Actual Pay back period = 2792000/716500 = 3.90 year

Pay back period = 3.90 years

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.