BUSINESS

Foundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]

[The following information applies to the questions displayed below.]

 

Cardinal Company is considering a five-year project that would require a $2,845,000 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 $ 2,869,000
  Variable expenses 1,126,000
  Contribution margin 1,743,000
  Fixed expenses:
  Advertising, salaries, and other
fixed out-of-pocket costs
$ 709,000
  Depreciation 569,000
  Total fixed expenses 1,278,000
  Net operating income $ 465,000

 

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

References

Section BreakFoundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]

1.

value:
0.21 points

Required information

Foundational 13-1

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.)
 
Sales
Variable expenses
Advertising, salaries, and other fixed out-of-pocket costs expenses
Depreciation expense

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-1Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

 

2.

value:
0.21 points

Required information

Foundational 13-2

2-a. What are the project’s annual net cash inflows?

 

2-b. What is the present value of the project’s annual net cash inflows? (Round discount factor to 3 decimal places)

 

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-2Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

3.

value:
0.21 points

Required information

Foundational 13-3

3. 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.)

 

 

rev: 04_23_2015_QC_CS-13345

References

eBook & Resources

WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.

Foundational 13-3Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.

Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.

Check my work

4.

value:
0.21 points

Required information

Foundational 13-5

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