7. What is the project’s payback period? (Round your answer to 2 decimal places.

Question

7.

What is the project’s payback period? (Round your answer to 2 decimal places.)

8.What is the project’s simple rate of return for each of the five years? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

9.If the company’s discount rate was 20% instead of 18%, would you expect the project's net present value to be higher than, lower than, or the same?

10.If the equipment’s salvage value was $400,000 instead of $200,000, would you expect the project’s payback period to be higher than, lower than, or the same?

11.

If the equipment’s salvage value was $400,000 instead of $200,000, would you expect the project's net present value to be higher than, lower than, or the same?

What is the project’s payback period? (Round your answer to 2 decimal places.)

8.What is the project’s simple rate of return for each of the five years? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

9.If the company’s discount rate was 20% instead of 18%, would you expect the project's net present value to be higher than, lower than, or the same?

10.If the equipment’s salvage value was $400,000 instead of $200,000, would you expect the project’s payback period to be higher than, lower than, or the same?

11.

If the equipment’s salvage value was $400,000 instead of $200,000, would you expect the project's net present value to be higher than, lower than, or the same?

Cardinal Company is considering a project that would require a $2,782,000 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 $200,000. The company's discount rate is 18%. The project would provide net operating Income each year as follows: Sal Varlable expenses $2,873,000 1,019,000 1,854,000 Contribution margin Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs Depreclation $754,000 516,400 Total fixed expenses 1,270,400 Net operating Income $583,600

Explanation / Answer

Ans-7

8

9.If the company’s discount rate was 20% instead of 18%, would you expect the project's net present value to be higher than, lower than, or the same?

NPV will be lower as high discount means the high rate of interest so future value of money would be less so NPV would decrease.

10.If the equipment’s salvage value was $400,000 instead of $200,000, would you expect the project’s payback period to be higher than, lower than, or the same

No effect since scrap value would be calculated in 5th year and payback period is itself in 4th year.

Discounted Payback Period Analysis Discount Rate 18% Projected                                 1                         2                        3                        4                        5 Undiscounted Net Cash Flow        (2,782,000)                     932,203             790,003            669,494            567,368            568,242 Cumulative Net Cash Flow                (1,849,797)        (1,059,794)          (390,300)            177,068            745,310 Undiscounted Payback Period                    4.00 First Year Positive Partial Year Payback Period                    3.69 Actual Number of Years 567,368 390,300 0.69 year+3 years=3.69 years

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