Reference no: EM132571938

Cardinal Company is considering a project that would require a $2,750,000 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 $400,000. The company's discount rate is 18%.

The project would provide net operating income each year as follows:

Sales $2,849,000

Variable expenses 1,122,000

Contribution margin 1,727,000

Fixed expenses:

Advertising, salaries, and other

fixed out-of-pocket costs. $752,000

Depreciation 470,000

total fixed expenses 1,222,000

Net operating income $505,000

Question 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

Question 2. What are the project's annual net cash inflows?

Question 3. What is the present value of the project's annual net cash inflows? (Round final answer to the nearest dollar amount.)

Question 4. What is the present value of the equipment's salvage value at the end of five years? (Round final answer to the nearest dollar amount.)

Question 5. What is the project's net present value? (Round final answer to the nearest dollar amount.)

Question 6. What is the project profitability index for this project? (Round final answer to 2 decimal places.)

Question 7. What is the project's payback period? (Round your answer to 2 decimal places.)

Question 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.))

Question 9. If the company's discount rate was 20% instead of 18%, would you expect the project's net present value to be higher than, lower than, or the same?

Question 10. If the equipment's salvage value was $600,000 instead of $400,000, would you expect the project's payback period to be higher than, lower than, or the same?

Question 11. If the equipment's salvage value was $600,000 instead of $400,000, would you expect the project's net present value to be higher than, lower than, or the same?

Question 12. If the equipment's salvage value was $600,000 instead of $400,000, 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.))

Question 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. Round final answer to the nearest whole dollar.)

Question 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.)

Question 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.))