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Cardinal Company is considering a five-year project that would require a $2,812,000 investment...

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Accounting

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 companys 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 view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.

9. If the companys discount rate was 18% instead of 16%, would you expect the project's net present value to be higher, lower, or the same?

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