Cardinal Company is considering a project that would require a $2,985,000 invest
ID: 2471470 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,985,000 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 16%. The project would provide net operating income each year as follows:
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.)
Depreciation expense
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
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.)
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
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.)
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.))
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 50%. 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.)
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 50%. What was the project’s actual payback period? (Round your answer to 2 decimal places.)
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 50%. 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.))
Cardinal Company is considering a project that would require a $2,985,000 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 16%. The project would provide net operating income each year as follows:
Explanation / Answer
1.
Item(s) in the income statement shown above which will not affect cash flows is Depreciation.
As depreciation is a non-cash expense so it will be added back to Net profit.
5.
Project's NPV is as calculated below:
6.
Profitability index.
Item(s) in the income statement shown above which will not affect cash flows is Depreciation.
As depreciation is a non-cash expense so it will be added back to Net profit.