5)What is the project profitability index for this project? (Round discount fact

Question

5)What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final 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 50%. What was the project’s actual net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.)

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 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 50%. What was the project’s actual simple rate of return? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.)

5)What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.)

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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 net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.)

Cardinal Company is considering a five-year project that would require a $2,855,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 14%. The project would provide net operating income in each of five years as follows: Sales Variable expenses $2,867,000 1,125,000 Contribution margin Fixed expenses: Advertising, salaries, and other 1,742,000 $706,000 571,000 fixed out-of-pocket costs Depreciation Total fixed expense:s Net operating income 465,000

Explanation / Answer

2 a) project’s annual net cash inflows=Net operating income+Depreciation=465000+571000=1036000 5) Profitablity index=Present value of future cashflows/Initial investment Present value of future cashflows=1036000*Present value annuity at 14% for 5 years=1036000*3.433081=3556672 Profitablity index=3556672/2855000=1.25 13) Variable expense ratio=50% Sales 2867000 Variable expenses (2867000*50%) 1433500 Contribution margin 1433500 Fixed expenses: Advertising,salaries and other fixed out-of-pocket cost 706000 Depreciation 571000 1277000 Net operating income 156500 project’s annual net cash inflows=Net operating income+Depreciation=156500+571000=727500 Present value of future cashflows=727500*Present value annuity at 14% for 5 years=727500*3.433081=2497566 Net present value=Present value of future cashflows-initial investment=2497566-2855000=-357434 14) Payback period=Initial investment/Annual net cash inflows=2855000/727500=3.92 years 15) Simple rate of return=Annual net cash inflows/Initial investment=(727500/2855000)*100=25.48%

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