The Student Hub Homework? 0 Required information The foowing information applies

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The Student Hub Homework? 0 Required information The foowing information applies to the questions displayed below Cardinal Company is considering a five-year project that would require a $2,805,000 investment in equipment with a useful life of five years and no salvage value The company's discount rate is 14% The project would provde net operating income in each of five years as follows Sales Variable expenses Contribution nargin Fixed expenses: $2,741,e 1,125,e00 1,616,80e Advertising, salaries, and other fixed out-of-pocket costs $642,000 561,000 Depreciation Total fixed expenses Net operating income 1,283,809 413,000 Click here to view Exhibit 138-1 and Exhibit 138-2, to determine the appropriate discount factor(s) using table 15. 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 50% what was the project's actual simple rate of return? Round your answer to 2 decimal places.)

Explanation / Answer

New Contribution = 2741000 - 50% of 2741000 = $ 1370500

New Profit = New Contribution - Fixed Cost = $ 1370500 - $ 1203000 = $ 167500

Simple Rate of Return = (167500/2805000)*100 = 5.97%

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