Foundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6] [The following information
ID: 2446244 • Letter: F
Question
Foundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6] [The following information applies to the questions displayed below.] Cardinal Company is considering a five-year project that would require a $2,915,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,746,000 Variable expenses 1,126,000 Contribution margin 1,620,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 615,000 Depreciation 583,000 Total fixed expenses 1,198,000 Net operating income $ 422,000
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.)
Explanation / Answer
(1,394,112.00)
Calculation of Net Present Value of the Project Years Outflow/Inflow Variable Expense Contribution Fixed Expenses Net Operating Income PV @ 12% Net present Value 0 (2,915,000.00) (2,915,000.00) (2,915,000.00) 1.00 (2,915,000.00) 1 2,746,000.00 1,126,000.00 1,620,000.00 1,198,000.00 422,000.00 0.89 376,846.00 2 2,746,000.00 1,126,000.00 1,620,000.00 1,198,000.00 422,000.00 0.80 336,334.00 3 2,746,000.00 1,126,000.00 1,620,000.00 1,198,000.00 422,000.00 0.71 300,464.00 4 2,746,000.00 1,126,000.00 1,620,000.00 1,198,000.00 422,000.00 0.64 267,970.00 5 2,746,000.00 1,126,000.00 1,620,000.00 1,198,000.00 422,000.00 0.57 239,274.00 Total(1,394,112.00)
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