Please answer ALL questions. I will properly rate the answers. Cardinal Company

Question

Please answer ALL questions. I will properly rate the answers.

Cardinal Company is considering a project that would require a $2,812,000 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 $400,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:

Questions:

What is the project’s net present value? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.)

What is the project profitability index for this project? (Use the appropriate table to determine the discount factor(s) and final answer to 2 decimal places.)

If the equipment’s salvage value was $600,000 instead of $400,000, would you expect the project's net present value to be higher than, lower than, or the same?

If the equipment’s salvage value was $600,000 instead of $400,000, what would be the project’s simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project’s actual net present value? (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.)

Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project’s actual payback period? (Round your answer to 2 decimal places.)

Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project’s actual simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.))

Please answer ALL questions. I will properly rate the answers.

Cardinal Company is considering a project that would require a $2,812,000 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 $400,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:

Explanation / Answer

year Net cash inflows PVF @ 16% Present Value year Net cash inflows cumulative 1 $           1,047,000 0.8621 $     902,586.21 0              -2,812,000 -2,812,000 2 $           1,047,000 0.7432 $     778,091.56 1 $           1,047,000 -1,765,000 3 $           1,047,000 0.6407 $     670,768.58 2 $           1,047,000      -718,000 4 $           1,047,000 0.5523 $     578,248.78 3 $           1,047,000        329,000 5 $           1,047,000 0.4761 $     498,490.33 4 $           1,047,000 Total Present Value $ 3,428,185.46 5 $           1,047,000 Salvage Value 5 $               400,000 0.4761 $     190,445.21 Payback = 2 + (718000/1047000)*365 2.69 years Year Present Value 0 $    -2,812,000.00 1 to 5 $     3,428,185.46 5 $         190,445.21 NPV $         806,630.66 PI = PV of futurecash inflows/Initial investment 1.29 Sales $ 2,855,000 Variable expenses $ 1,010,000 Contribution margin $ 1,845,000 Fixed expenses: Advertising, salaries, and other $ 798,000 fixed out-of-pocket costs Depreciation $ 482,400 Total fixed expenses $ 1,280,400 Net operating income $    564,600 Add back depreciation $    482,400 Annual net cash inflows $ 1,047,000

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