Cardinal Company is considering a project that would require a $2,812,000 invest
ID: 2535197 • Letter: C
Question
Cardinal Company is considering a project that would require a $2,812,000 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 $400,000. The company’s discount rate is 16%. The project would provide net operating income each year as follows:
The exhibits shows that the Present value of annuity for 16% at 5 yrs is 3.274
and Present value of 1$ is .476
1.What is the present value of the project’s annual net cash inflows?
2.What is the project’s net present value?
3.What is the project profitability index for this project
4.
What is the project’s payback period?
8. What is the project’s simple rate of return for each of the five years?
9.
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
I have worked through all these problems and for some reason they are not right. If you could show me how you are doing it. it would help alot.
Cardinal Company is considering a project that would require a $2,812,000 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 16%. The project would provide net operating income each year as follows:
Explanation / Answer
Answer 1. Calculation of Net Cash inflow Amount Net Operating Income 564,600 Add: Dep. 482,400 Net Cash inflow per annum 1,047,000 PV of Projected Annual Net Cash Inflows = $1,047,000 X 3.274 PV of Projected Annual Net Cash Inflows = $3,427,878 Answer 2. Calculation of NPV of Project Particulars Year 16% Factor Product A Amount Present value C D C X D Cash Inflow Net Cash Inflow 1 -5 3.274 1,047,000 3,427,878 Salvage Value 5 0.476 400,000 190,400 A. Total Cash Inflow - PV 3,618,278 Cash Outflow Cost of Investment 0 1.000 2,812,000 2,812,000 B. Total Cash Outflow - PV 2,812,000 NPV (A - B) 806,278 Answer 3. Project Profitability Index = NPV / Intial Investment Project Profitability Index = $806,278 / $2,812,000 Project Profitability Index = 0.29 Answer 4. Payback period = Intial investment / Cash Inflow per period Payback period = $2,812,000 / $1,047,000 Payback period = 2.69 Years