Required informatio [The following information applies to the questions displaye
ID: 2392317 • Letter: R
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Required informatio [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,755,000 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 Variable expenses Contribution margin Fixed expenses: $2,875,000 1,124,000 1,751,000 Advertising, salaries, and other out-of-pocket costs fixed Depreciation 721,000 551,000 55-1,272,00o Total fixed expenses Net operating income $ 479,000 Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table 5. What is the project profitability index for this project? (Round your answer to 2 decimal places.) Project profitability indexExplanation / Answer
5.Project’s Profitability Index = 1.28
Annual Cash flow = Net Operating Income + Depreciation
= $479,000 + 551,000
= $10,30,000
Project’s Profitability Index = Present Vale of cash inflows / Initial Investment
= [ $10,30,000 x (PVIF 14%,5 Years) ] / $27,55,000
= [ $10,30,000 x 3.433081] / $27,55,000
= $35,36,073.40 / 27,55,000
= 1.28
6.Projects Internal Rate of Return = 25%
Internal Rate of Return Factor = Net Initial Investment / Annual Cash Flow
= $27,55,000 / 10,30,000
= 2.674757
From the Present Value Annuity Factor Table, We can find that the discount rate (IRR) corresponding to the factor of 2.674757 for 5 Years Will be approximately 25.27%.
Rounded to 25% (Rounded to nearest whole percent)
7.Project’s Payback period = 2.67 Years
Payback period = Initial Investment / Annual cash flow
= $27,55,000 / 10,30,000
= 2.67 Years
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