Please explain these... Cardinal Company is considering a project that would req
ID: 2373575 • Letter: P
Question
Please explain these...
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: Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. Required: What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.) Cardinal Company is considering a project that would require a $2,782,000 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 $200,000. The company's discount rate is 18%. The project would provide net operating income each year as follows: Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables. 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 discount factor(s) to 3 decimal places, other intermediate calculations and final answer to the nearest whole dollar.) Net present value $ 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: Required: 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.)Explanation / Answer
Q1) PV of Cash Inflow = (585000+515,000)PVIFA(16%,5) + 300,000PVIF(16%,5) = $3744200
project Profitabilty Index = 3,744,200/2,875,000 = 1.30
Q2) Actual NPV = 826150PVIFA(18%,5) + 200,000PVIF(18%,5) - 2,782,000 = - $111229
Net Present value = $ - 111,229
Q3) Actual Pay back period = 2875000/826050= 3.48 year
Pay back period = 3.48 years