Cardinal Company is considering a project that would require

Cardinal Company is considering a project that would require a $2,782,000 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 $200,000. The company’s discount rate is 18%. The project would provide net operating income each year as follows:

  

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.)

If the equipment’s salvage value was $400,000 instead of $200,000, 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.))

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.)

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.)

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.))

Information for questions 6 and 13

http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-2.JPG

http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-1.JPG

Cardinal Company is considering a project that would require a $2,782,000 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 $200,000. The company’s discount rate is 18%. The project would provide net operating income each year as follows:

Solution

Initial cost 2782000 Life 5 Years Salvage value 200000 Discount rate 18%   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 7,54,000   Depreciation 5,16,400   Total fixed expenses 1,270,400      Net operating income 583600 Add: Depreciation 5,16,400 Cash flow after tax 11,00,000 6) Profitability Index = PV of cash inflows/PV of cash outflows Year Inflows PV factor @ 18% PV of cash inflows 1 11,00,000 0.8474576 932203.4 2 11,00,000 0.7181844 790002.9 3 11,00,000 0.6086309 669494 4 11,00,000 0.5157889 567367.8 5 13,00,000 0.4371092 568242 (Including salvage value) 3527310 PI = 3527310/2782000 = 1.27 7) Year Cash flow Cumulative cash flows 0 -2782000 -2782000 1 11,00,000 -16,82,000 2 11,00,000 -5,82,000 3 11,00,000 5,18,000 4 11,00,000 16,18,000 5 13,00,000 29,18,000 Since the cumulative cashflow become positive in year 3, payback period is between 2 and 3. Payback period= 2 + (582000/1100000) 2.53 8) Year Inflows Investment Simple rate = Inflow/Investment 1 11,00,000 2782000 39.54% 2 11,00,000 2782000 39.54% 3 11,00,000 2782000 39.54% 4 11,00,000 2782000 39.54% 5 13,00,000 2782000 46.73% 9) Year Inflows Investment Simple rate = Inflow/Investment 1 11,00,000 27,82,000 0 2 11,00,000 2782000 39.54% 3 11,00,000 2782000 39.54% 4 11,00,000 2782000 39.54% 5 15,00,000 2782000 53.92% Please post the other sub parts separately. As per guidelines we are supposed to solve ony first 4 parts in case we have multiple parts of a question. Thanks