Reference no: EM131211201
Cardinal Company is considering a project that would require a $2,875,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $300,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows: Sales $ 2,871,000 Variable expenses 1,018,000 Contribution margin 1,853,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 753,000 Depreciation 515,000 Total fixed expenses 1,268,000 Net operating income $ 585,000 16. Required information Required: 1. Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.) Sales Variable expenses Advertising, salaries, and other fixed out-of-pocket costs expenses Depreciation expense eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. 17. Required information 2. What are the project’s annual net cash inflows? eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 18. Required information Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table. 3. What is the present value of the project’s annual net cash inflows? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 19. Required information Click here to view Exhibit 11B-1, to determine the appropriate discount factor(s) using table. 4. What is the present value of the equipment’s salvage value at the end of five years? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 20. Required information Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. 5. What is the project’s net present value? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 21. Required information Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. 6. What is the project profitability index for this project? (Use the appropriate table to determine the discount factor(s) and final answer to 2 decimal places.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 22. Required information 7. What is the project’s payback period? (Round your answer to 2 decimal places.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 23. Required information 8. What is the project’s simple rate of return for each of the five years? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 24. Required information 9. If the company’s discount rate was 18% instead of 16%, would you expect the project's net present value to be higher than, lower than, or the same? Same Lower Higher eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 25. Required information 10. If the equipment’s salvage value was $500,000 instead of $300,000, would you expect the project’s payback period to be higher than, lower than, or the same? Lower Same Higher eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 26. Required information 11. If the equipment’s salvage value was $500,000 instead of $300,000, would you expect the project's net present value to be higher than, lower than, or the same? Same Higher Lower eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 27. Required information 12. If the equipment’s salvage value was $500,000 instead of $300,000, what would be the project’s simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) ` eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 28. Required information Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. 13. 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 45%. What was the project’s actual net present value? (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 29. Required information 14. 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 45%. What was the project’s actual payback period? (Round your answer to 2 decimal places.) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work 30. Required information 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 45%. What was the project’s actual simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) eBook & Resources eBook: Compute the simple rate of return for an investment. eBook: Determine the payback period for an investment. eBook: Evaluate the acceptability of an investment project using the net present value method. eBook: Rank investment projects in order of preference. Check my work
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