Solve the below problem:
Q: Cardinal Company is considering a project that would require a $2,765,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $200,000. The company's discount rate is 12%. The project would provide net operating income each year as follows:
|
|
|
|
|
| Sales |
|
|
$ |
2,861,000 |
| Variable expenses |
|
|
|
1,101,000 |
|
|
|
|
|
| Contribution margin |
|
|
|
1,760,000 |
| Fixed expenses: |
|
|
|
|
Advertising, salaries, and other
fixed out-of-pocket costs |
$ |
705,000 |
|
|
| Depreciation |
|
513,000 |
|
|
|
|
|
|
|
| Total fixed expenses |
|
|
|
1,218,000 |
|
|
|
|
|
| Net operating income |
|
|
$ |
542,000 |
|
|
|
|
|
|
Determine the appropriate discount factor(s) using table.
What is the present value of the project's annual net cash inflows?