Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 18%. The project would provide net operating income in each of five years as follows:
Sales | $ | 2,865,000 | ||
Variable expenses | 1,015,000 | |||
Contribution margin | 1,850,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 750,000 | ||
Depreciation | 591,000 | |||
Total fixed expenses | 1,341,000 | |||
Net operating income | $ | 509,000 | ||
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. Any boxes left with a question mark will be automatically graded as incorrect.)
2. What are the project’s annual net cash inflows?
3. What is the present value of the project’s annual net cash inflows? (Round your final answer to the nearest whole dollar amount.)
4. What is the project’s net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.)
5. What is the project profitability index for this project? (Round your answer to 2 decimal places.)
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