Foundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6] The following information

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 16%. The project would provide net operating income in each of five years as follows Sales Variable expenses $ 2,863.000 1,014.000 1,849.000 Contribution margin Fixed expenses: Advertising, salaries, and other $ 781000 583,000 fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income 1.364,000 $ 485.000 Click here to view Exhibit 13B:1 and Exhibit 138-2, to determine the approprate discount factor(s) using tables

Explanation / Answer

Depreciation, as it is a non cash item it would not affect the cashflows. Annual net cash inflow: Net income 485000 Add: dep 583000 cash inflow 1068000 PVAF(16%,5 yrs) 3.27429 PV of inflow 3496941.72 outflow -2915000 NPV 581941.72 PI               1.20

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