Cardinal Company is considering a project that would require a $2,810,000 invest
ID: 2516219 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,810,000 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 $500,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:
1.
value:
0.66 points
Required information
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.)
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
2.
value:
0.66 points
Required information
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
3.
value:
0.66 points
Required information
Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table.
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
4.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1, to determine the appropriate discount factor(s) using table.
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
5.
value:
0.66 points
Required information
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.)
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
6.
value:
0.66 points
Required information
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.)
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
7.
value:
0.66 points
Required information
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
8.
value:
0.66 points
Required information
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
9.
value:
0.66 points
Required information
If the company’s discount rate was 18% instead of 16%, would you expect the project's net present value to be higher than, lower than, or the same?
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
10.
value:
0.66 points
Required information
If the equipment’s salvage value was $700,000 instead of $500,000, would you expect the project’s payback period to be higher than, lower than, or the same?
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
11.
value:
0.66 points
Required information
If the equipment’s salvage value was $700,000 instead of $500,000, would you expect the project's net present value to be higher than, lower than, or the same?
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
12.
value:
0.66 points
Required information
If the equipment’s salvage value was $700,000 instead of $500,000, 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.))
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References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
13.
value:
0.66 points
Required information
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 45%. 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), Round other intermediate calculations and final answer to the nearest whole dollar.)
rev: 07_08_2017_QC_CS-92861
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
14.
value:
0.66 points
Required information
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.)
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
15.
value:
0.76 points
Required information
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 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 $2,810,000 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 $500,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:
Explanation / Answer
ans 1 Depreciation will not affect cash flow as it is a non cash expense when we use direct method ans 2 Project annual cash inflow Net operating income 482000 Add: depreciation 462000 Project annual cash inflow 944000 ans 3 PV of net cash annual inflow Net cash inflow 944000 PVIFA (16%,5) 3.27429 PV of net cash inflow 3090930 ans 4 Salavage value 500000 PVIF(16%,5) 0.47611 PV of salavage value 238055 ans 5 NPV PV of net cash inflow 3328985 (3090930+238055) Less: initial investment 2810000 NPV 518985 ans 6 PV of Futire cash flows/Initial investment PI= 3328985/2810000 1.18