Cardinal Company is considering a five-year project that would require a $2,810,000 investment in equipment...
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Cardinal Company is considering a five-year project that would require a $2,810,000 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 $ 2,847,000 Variable expenses 1,121,000 Contribution margin 1,726,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 782,000 Depreciation 562,000 Total fixed expenses 1,344,000 Net operating income $ 382,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.
15. Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the projects actual simple rate of return?
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