. connect ACCOUNTING tional 15 - Chpt 11 Extra Credit Questions 1-15 (of 15) Car
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. connect ACCOUNTING tional 15 - Chpt 11 Extra Credit Questions 1-15 (of 15) Cardinal Company is considering a project that would require a $2,815,000 investment in equipment with a useful life of flive 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: Sales Variable expenses $2,863,000 1014,000 1,849,000 Contribution margin Fixed expenses: Advertising, salaries, and other fxed out-of-pocket costs Depreciation 781,000 483,000 1,264,000 Total foxed expenses 585,000 Net operating income 0.50 points 6 MacBook AirExplanation / Answer
Answer to Part 1.
Depreciation Expense will not affect cash Flow, as it is a Non-Cash item. The Non-Cash item will not effect the cash Flow such as Amortization expenses, Depreciation Expense.
Answer to Part 2.
Annual Net Cash inflow = Net Operating Income + Depreciation
Annual Net Cash inflow = $585,000 + $483,000
Annual Net Cash inflow = $1,068,000
Answer to Part 3.
Present value of Annual Net Cash Inflow = Annual Cash Inflow * PV Factor
PV Factor of $1 (16%, 5year) = 3.2743
Present value of Annual Net Cash Inflow = $1,068,000 * 3.2743
Present value of Annual Net Cash Inflow = $3,496,952
Answer to Part 4.
PV of Equipment Salvage Value at the end of five year = Salvage Value * PV Factor
PV of Equipment Salvage Value at the end of five year = $400,000 * 0.4761
PV of Equipment Salvage Value at the end of five year = $190,440
Answer to Part 5.
Net Present Value = PV of Cash Inflow – PV of cash Outflow
PV of Cash Inflow = $3,496,952 + $190,440
PV of Cash Inflow = $3,687,392
Net Present Value = $3,687,392 - $2,815,000
Net Present Value = $872,392
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