Question

Cardinal Company is considering a five-year project that would require a $2,500,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,853,000 Variable expenses 1,200,000 Contribution margin 1,653,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 790,000 Depreciation 500,000 Total fixed expenses 1,290,000 Net operating income $ 363,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. 6. What is the project’s internal rate of return? (Round your answer to nearest whole percent.)

Answer #1

Initial Investment = $2,500,000

Useful Life = 5 years

Annual Net Cash Flow = Annual Net Operating Income + Annual
Depreciation

Annual Net Cash Flow = $363,000 + $500,000

Annual Net Cash Flow = $863,000

IRR factor = Initial Investment / Annual Net Cash Flow

IRR factor = $2,500,000 / $863,000

IRR factor = 2.89687

PVA of $1 (21%, 5) = 2.92598

PVA of $1 (22%, 5) = 2.86364

Using PV of ordinary annuity table value at n = 5, IRR is 21%

So, IRR of the project is 21%

Cardinal Company is considering a five-year project that would
require a $2,850,000 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
$
2,857,000
Variable expenses
1,011,000
Contribution margin
1,846,000
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
$
799,000
Depreciation
570,000
Total fixed expenses
1,369,000
Net operating income
$
477,000
Click here to...

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:
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
Click here to...

Cardinal Company is considering a project that would require a
$2,500,000 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 12%. The project would provide net
operating income each year as follows:
Sales
$
2,853,000
Variable
expenses
1,200,000
Contribution
margin
1,653,000
Fixed expenses:
Advertising,
salaries, and other
fixed...

Cardinal Company is considering a five-year project that would
require a $2,855,000 investment in equipment with a useful life of
five years and no salvage value. The company’s discount rate is
14%. The project would provide net operating income in each of five
years as follows:
Sales
$
2,867,000
Variable expenses
1,125,000
Contribution margin
1,742,000
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
$
706,000
Depreciation
571,000
Total fixed expenses
1,277,000
Net operating income
$
465,000
Foundational 12-4
4....

Cardinal Company is considering a project that would require a
$2,875,000 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 $300,000. The
company’s discount rate is 16%. The project would provide net
operating income each year as follows:
Sales
$
2,871,000
Variable
expenses
1,018,000
Contribution
margin
1,853,000
Fixed expenses:
Advertising,
salaries, and other
fixed out-of-pocket costs
$...

Cardinal Company is considering a project that would require a
$2,765,000 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 12%. The project would provide net
operating income each year as follows:
Sales
$
2,861,000
Variable
expenses
1,101,000
Contribution
margin
1,760,000
Fixed expenses:
Advertising,
salaries, and other
fixed out-of-pocket costs
$...

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...

Cardinal Company is considering a five-year project that would
require a $3,025,000 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:
Sales $2,737,000
Variable expenses $1,001,000
Contribution margin $1,736,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$610,000
Depreciation $605,000
Total fixed expenses $1,215,000
Net operating income $521,000
5. What is the project profitability...

Cardinal Company is considering a five-year project that would
require a $3,025,000 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:
Sales $2,737,000
Variable expenses $1,001,000
Contribution margin $1,736,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$610,000
Depreciation $605,000
Total fixed expenses $1,215,000
Net operating income $521,000
4. What is the project's net...

Cardinal Company is considering a five-year project that would
require a $2,812,000 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:
Sales
$
2,855,000
Variable expenses
1,010,000
Contribution margin
1,845,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
$
798,000
Depreciation
562,400
Total fixed expenses
1,360,400
Net operating income
$
484,600
Click here to...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 13 minutes ago

asked 32 minutes ago

asked 33 minutes ago

asked 39 minutes ago

asked 52 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago