Cardinal Company is considering a five-year project that would require a $2,915,
ID: 2593071 • Letter: C
Question
Cardinal Company is considering a five-year project that would require a $2,915,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 16%. The project would provide net operating income in each of five years as follows:
Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.
Required:
1. Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.)
Sales $ 2,863,000 Variable expenses 1,014,000 Contribution margin 1,849,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 781,000 Depreciation 583,000 Total fixed expenses 1,364,000 Net operating income $ 485,000
Explanation / Answer
Dear Student
As we know that cash flow directly relates to actual cash inflow or outflow, Now from the options given in the question as well as from the income statement, All the items as cash items except Depreciation i.e Depreciation is a non-cash item.
Therefore Depreciation is that item which would not affect cash flows of the enterprise.
Regards