Cardinal Company is considering a project that would require a $2,755,000 invest
ID: 2479499 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,755,000 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 14%. 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.
What is the project’s net present value? (Round discount factor(s) to 3 decimal places, intermediate and final answers to the nearest dollar amount.)
Cardinal Company is considering a project that would require a $2,755,000 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 14%. The project would provide net operating income each year as follows:
Explanation / Answer
Net operating income 5,68,000 Add: Noncash deduction for depreciation 4,91,000 Annual net cash inflow 10,59,000 Year Amount of Cash Flows 14% Factor Cost of the equipment Now -27,55,000 1 -2755000 Annual net cash inflows 1 to 5 10,59,000 3.433 3635547 Salvage value of the equipment 5 3,00,000 0.519 155700 Net present value 1036247