Cardinal Company is considering a five-year project that wouldrequire a $3,025,000 investment in equipment...

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Accounting

Cardinal Company is considering a five-year project that wouldrequire a $3,025,000 investment in equipment with a useful life offive years and no salvage value. The company's discount rate is16%. The project would provide net operating income in each of fiveyears 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
3. What is the present value of the project's annual net cashinflows? (Round your final answer to the nearest whole dollaramount.)

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4.3 Ratings (780 Votes)


	Annual Net Cash Inflows =Net Operating Income + Depreciation expenses
	Annual Net Cash Inflows =$521,000 + $605,000 =$1,126,000

Years	Net Cash Inflows	Discount Factor @16%	PV of Cash Flows at 16%
1	$ 1,126,000	0.86207	$ 970,691
2	$ 1,126,000	0.74316	$ 836,798
3	$ 1,126,000	0.64066	$ 721,383
4	$ 1,126,000	0.55229	$ 621,879
5	$ 1,126,000	0.47611	$ 536,100
	Total of PV of CashFlows		$ 3,686,851

	There may be rounding off errors due to 5 decimal points rounding in Discount factor

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In: AccountingCardinal Company is considering a five-year project that wouldrequire a $3,025,000 investment in equipment with...Cardinal Company is considering a five-year project that wouldrequire a $3,025,000 investment in equipment with a useful life offive years and no salvage value. The company's discount rate is16%. The project would provide net operating income in each of fiveyears as follows:Sales $2,737,000Variable expenses $1,001,000Contribution margin $1,736,000Fixed expenses:Advertising, salaries, and other fixed out-of-pocket costs$610,000Depreciation $605,000Total fixed expenses $1,215,000Net operating income $521,0003. What is the present value of the project's annual net cashinflows? (Round your final answer to the nearest whole dollaramount.)