The following information applies to the questions displayed below. Cardinal Com
ID: 2584464 • Letter: T
Question
The following information applies to the questions displayed below. Cardinal Company is considering a five-year project that would require a $2,805,000 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 Sal Varlable expenses $ 2,741,000 1,125,000 1,616,000 Contribution margin Flxed expenses: Advertising, salaries, and other $ 642,000 561,000 fixed out-of-pocket costs Depreciation Total fixed expenses Net operating Income 1,203,000 $413,000Explanation / Answer
1. Project's Annual Net cash inflow
2. Profitablity Index = Annual Cash Inflow/Initial Investment
=413000/2805000 = 0.15
3. Revised Net Operating Income
Revised Net Present Value
4. Payback period = Initial Investment/annual cash inflow
=2805000/167500 = 16.75
5. Net Present Value at 5% is -2079813
NPV at 1% is -1992050
Revised IRR is 1%
Year Partculars Amount Discounting factor @14% Present Value 0 Initial Investment -2805000 1 -2805000 1 Cash Inflow 413000 0.877 362280.70 2 Cash Inflow 413000 0.769 317790.09 3 Cash Inflow 413000 0.675 278763.24 4 Cash Inflow 413000 0.592 244496.00 5 Cash Inflow 413000 0.519 214499.26 Net Present Value -1387170.71Related Questions
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