Cardinal Company is considering a project that would require a $2,975,000 invest
ID: 2381165 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,975,000 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
Cardinal Company is considering a project that would require a $2,975,000 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
Explanation / Answer
Hi,
Please find the answer as follows:
Revised Operating Income
Sales = 2735000
Less Variable Expenses = 2735000*.45 = 1230750
Contribution = 1504250
Less Fixed Cost = 1270000
Net Operating Income = 234250
Actual Simple Rate of Return = Net Operating Income/Initial Investment = 234250/2975000*100 = 7.87%
Answer is 7.87%.
Thanks.