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Accounting

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Cardinal Company is considering a five-year project that would require a $2,945,000 investment in equipment with a useful life of five years and no salvage value. The companys discount rate is 18%. The project would provide net operating income in each of five years as follows:

Sales $ 2,873,000
Variable expenses 1,019,000
Contribution margin 1,854,000
Fixed expenses:
Advertising, salaries, and other out-of-pocket costs $ 754,000
Depreciation 589,000
Total fixed expenses 1,343,000
Net operating income $ 511,000

(Hint: Use Microsoft Excel to calculate the discount factor(s).)

8. If the companys discount rate was 20% instead of 18%, would you expect the project's net present value to be higher, lower, or the same?

multiple choice

  • Higher

  • Lower

  • Same

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