Cardinal Company is considering a project that would require a

$2,725,000 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 14%. The project would provide net

operating income each year as follows:

Cardinal Company is considering a project that would require a

$2,725,000 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 14%. The project would provide net

operating income each year as follows:

Cardinal Company is considering a project that would require a

$2,725,000 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 14%. The project would provide net

operating income each year as follows:

Cardinal Company is considering a project that would require a

$2,725,000 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 14%. The project would provide net

operating income each year as follows:

Cardinal Company is considering a project that would require a

$2,725,000 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 14%. The project would provide net

operating income each year 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

465,000

Total fixed

expenses

1,171,000

Net operating

income

$

571,000

1.

Which item(s) in the income statement shown above will not

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

3.

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

4.

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

What is the project’s net present value? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

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

465,000

Total fixed

expenses

1,171,000

Net operating

income

$

571,000

1.

Which item(s) in the income statement shown above will not

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

3.

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

4.

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

What is the project’s net present value? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

Sales

$

2,867,000

Sales $ 2,867,000

Variable

expenses

1,125,000

Variable

expenses 1,125,000

Contribution

margin

1,742,000

Contribution

margin 1,742,000

Fixed expenses:

Fixed expenses:

Advertising,

salaries, and other

fixed out-of-pocket costs

$

706,000

Advertising,

salaries, and other

fixed out-of-pocket costs $ 706,000

Depreciation

465,000

Depreciation 465,000

Total fixed

expenses

1,171,000

Total fixed

expenses 1,171,000

Net operating

income

$

571,000

Net operating

income $ 571,000

1.

Which item(s) in the income statement shown above will not

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

3.

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

4.

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

What is the project’s net present value? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

1.

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

1.

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

1.

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

1.

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

1.

Which item(s) in the income statement shown above will not

affect cash flows? (You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

(You may select more than one answer.

Click the box with a check mark for correct answers and click to

empty the box for the wrong answers.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

Sales

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

Sales

Sales

Variable expenses

Variable expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Advertising, salaries, and other

fixed out-of-pocket costs expenses

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

Depreciation expense

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

2.

What are the project’s annual net cash inflows?

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

3.

What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

3. What is the present

value of the project’s annual net cash inflows? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.) (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

4.

What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

4. What is the present

value of the equipment’s salvage value at the end of five years?

(Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.) (Use the appropriate table to determine the discount

factor(s) and final answer to the nearest dollar

amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

5.

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

5.

What is the project’s net present value? (Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

(Use the

appropriate table to determine the discount factor(s) and final

answer to the nearest dollar amount.)

1)Which item(s) in the income statement shown above will not

affect cash flows?

Depreciation expense

Note : Depreciation expense is non cash expenses

2)

Project’s annual net cash inflows = Net operating

income + Depreciation

Project’s annual net cash inflows = 571000+465000

Project’s annual net cash inflows = 1036000

3)

Present value of the project’s annual net cash inflows =

Project’s annual net cash inflows *PVIFA(14%,5)

Present value of the project’s annual net cash inflows =

1036000*3.43308

Present value of the project’s annual net cash inflows =

3,556,671

4)

Present value of the equipment’s salvage value at the end of

five years = Salvage Value*PVIF(14%,5)

Present value of the equipment’s salvage value at the end of

five years = 400000*0.51937

Present value of the equipment’s salvage value at the

end of five years = 207,748

5)

Project’s net present value = -Initial Investment + Present

value of the project’s annual net cash inflows + Present value of

the equipment’s salvage value at the end of five years

Project’s net present value = -2725000+ 3556671 + 207748

Project’s net present value = $ 1,039,419