Cardinal Company is considering a five-year project that would require a $2,870,
ID: 2479574 • Letter: C
Question
Cardinal Company is considering a five-year project that would require a $2,870,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows:
2b. What is the present value of the project’s annual net cash inflows? (Round discount factor to 3 decimal places)
3. What is the project’s net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)
4. 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 five-year project that would require a $2,870,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows:
Explanation / Answer
Answer 2 (a) Annual Cash inflow = Operating Income + Depreciation = 481000+ 574000 = $ 10,55,000. Answer 2 (b):- Present value of Annual Cash inflow Cash inflow PVF @ 12% Present Value Year 1 1,055,000 0.893 941,964 Year 2 1,055,000 0.797 841,040 Year 3 1,055,000 0.712 750,928 Year 4 1,055,000 0.636 670,472 Year 5 1,055,000 0.567 598,635 3,803,039 Answer 3 ;- Project Net present value = $ 3803039- $ 2870000 = $ 933,039. Answer 4:- Project Profitability index = $ 3803039/$2870000 = 1.33