Required information [The following information applies to the questions display

Question

Required information [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,812,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 16%. The project would provide net operating income in each of five years as follows Sales Variable expenses Contribution margin Fixed expenses: $ 2,855,000 1,010,000 1,845,000 Advertising, salaries, and other fixed out-of-pocket costs Depreciation $798,000 562,400 Total fixed expenses Net operating income 1,360,400 $ 484,600 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 index

Explanation / Answer

5.

now , let us calculate the NPV

note:

present value of annuity factor formula =[1 - (1+r)^(-n)]/r

r = 0.16

n = 5 years

=>[ 1 - (1.16)^(-5)]/0.16

=>0.523887/0.16

=>3.27429.

Profitablility index = present value of cash inflows / initial cash outflow

=>3,428,181.63 / 2812000

=>1.22.

net operating income 484,600 add:depreciation 562,400 total cash inflow 1,047,000

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

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