Cardinal Company is considering a project that would require a $2,725,000 invest
ID: 2483616 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,725,000 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 14%. The project would provide net operating income each year as follows:
If the equipment’s salvage value was $600,000 instead of $400,000, would you expect the project’s payback period to be higher than, lower than, or the same?
If the equipment’s salvage value was $600,000 instead of $400,000, would you expect the project's net present value to be higher than, lower than, or the same?
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.))
Cardinal Company is considering a project that would require a $2,725,000 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 14%. The project would provide net operating income each year as follows:
Explanation / Answer
Answer:
10. If the salvage values changes, then there will be no effect on the payback period as the cash has been reciovered earlier.
11. If the salvage value increases then the NPV of the project will be higher because of increase n cash inflow of the project
12.
0 -2725000 1 996000 2 996000 3 996000 4 996000 5 1596000 Rate 27.50%