[The following information applies to the questions displayed below) Cardinal Co

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[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 781,000 583,000 fixed out-of-pocket costs Depreciation Total fixed expenses Net operating income 1364.000 $ 485.000 Click here to view Exhibit 13B-1 and Exhibit 138-2, to determine the appropriate discount factor(s) using tables

Explanation / Answer

13.9- Answer is Lower.

13.10 Answer is same.

13.11 Answer is higher

13.12 Answer is higher

13.13 NPV= (316357)

13.14 Payback period is more than 5 years as NPV is negative in year 5

13.15 simple return = 17.8%

working as given below :-

1. NPV at 16% Initial Investment $ 2915000 Cash inflow = Net operating income + Depreciation                         '= 485000+583000 = 1068000 Year 0 Year 1 year 2 Year 3 Year 4 Year 5 Cash outflow -2915000 Cash inflow 1068000 1068000 1068000 1068000 1068000 -2915000 1068000 1068000 1068000 1068000 1068000 PVF@ 16% 1              0.862              0.743              0.641              0.552              0.476 Present value         (2,915,000)          920,690          793,698          684,222          589,847          508,489 Net Present Value               581,946 2. NPV at 18% Year 0 Year 1 year 2 Year 3 Year 4 Year 5 Cash outflow -2915000 Cash inflow 1068000 1068000 1068000 1068000 1068000 -2915000 1068000 1068000 1068000 1068000 1068000 PVF@ 18% 1              0.847              0.718              0.609              0.516              0.437 Present value         (2,915,000)          905,085          767,021          650,018          550,863          466,833 Net Present Value               424,819 3. NPV if salvage Value = $ 300000 Year 0 Year 1 year 2 Year 3 Year 4 Year 5 Cash outflow -2915000 Cash inflow 1068000 1068000 1068000 1068000 1068000 Salvage value 300000 -2915000 1068000 1068000 1068000 1068000 1368000 PVF@ 16% 1              0.862              0.743              0.641              0.552              0.476 Present value         (2,915,000)          920,690          793,698          684,222          589,847          651,323 Net Present Value               724,780 4. NPV if variable Exp ratio is 45% New Variable Exp 1288350 Existing 1014000 Additional 274350 New cash inflow = $ 1068000-274350 =793650 Year 0 Year 1 year 2 Year 3 Year 4 Year 5 Cash outflow -2915000 Cash inflow 793650 793650 793650 793650 793650 -2915000 793650 793650 793650 793650 793650 PVF@ 16% 1              0.862              0.743              0.641              0.552              0.476 Present value         (2,915,000)          684,181          589,811          508,458          438,326          377,867 Net Present Value             (316,357) Total present value of inflow        2,598,643.2 Yearly inflow            519,728.6 Simple return 17.8%

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