2. What is the project’s payback period? 1. What are the project’s annual net ca

Question

2. What is the project’s payback period?

1. What are the project’s annual net cash inflows? Cardinal Company is considering a project that would require a $2,745,000 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 $500,000. The company's discount rate is 18%. The project would provide net operating Income each year as follows: Sales Varlable expenses $ 2,857000 1,011,000 1,846,000 Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreciation $ 799,000 449,000 Total fixed expenses 1,248,000 Net operating income $ 598,000

Explanation / Answer

1. The projects annual net cash inflows Net operating income 598000 Add ; Depriciation 449000 Annual net cash inflow 1047000 2) Payback period = Initial investment / annual net cash inflow                                 = 2745000 / 1047000                                 = 2.62 years v

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