Cardinal Company is considering a five-year project that would require a $2,500,000 investment in…

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 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

1. What are the project’s annual net cash inflows?

2. What is the present value of the project’s annual net cash inflows?

3. What is the project’s net present value?

4. What is the project profitability index for this project?

5. What is the project’s internal rate of return?

7. What is the project’s payback period?

8. What is the project’s simple rate of return for each of the five years?

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