Cardinal Company is considering a five-year project that would require a $2,945,
ID: 2480045 • Letter: C
Question
Cardinal Company is considering a five-year project that would require a $2,945,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales $ 2,873,000 Variable expenses 1,019,000 Contribution margin 1,854,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 754,000 Depreciation 589,000 Total fixed expenses 1,343,000 Net operating income $ 511,000 Click here to view Exhibit 13B-1 and Exhibit 13B-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 payback period? (Round your answer to 2 decimal places.)
14.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
Answe:-
Payback Period= Initial Outflow / Cash flow
= 29,45,000/ 8,26,150= 3.56
Cash Flow= 2,873,000- (45% of 28,73,000)= 15,80,150- 7,54,000=8,26,150