Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: out-of-pocket costs Depreciation $ 2,865,000 1,015,000 1,850,000 Advertising, salaries, and other fixed $ 750,000 591,000 Total fixed expenses 1,341,000 $ 509,000 Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Foundational 12-15 (Algo) 15. Assume a postaudit showed that all estimates (including total sales) vlere exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project's actual simple rate of return? (Round your answer to 2 decimal places.)

Cornerstones of Cost Management (Cornerstones Series)
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Chapter19: Capital Investment
Section: Chapter Questions
Problem 10E: Roberts Company is considering an investment in equipment that is capable of producing more...
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Cardinal Company is considering a five-year project that would require a $2,955,000 investment in
equipment with a useful life of five years and no salvage value. The company's discount rate is 18%. The
project would provide net operating income in each of five years as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
out-of-pocket costs
Depreciation
$ 2,865,000
1,015,000
1,850,000
Advertising, salaries, and other fixed
$ 750,000
591,000
Total fixed expenses
1,341,000
$ 509,000
Net operating income
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using
table.
Foundational 12-15 (Algo)
15. Assume a postaudit showed that all estimates (including total sales) vlere exactly correct except for the variable expense
ratio, which actually turned out to be 45%. What was the project's actual simple rate of return? (Round your answer to 2
decimal places.)
Transcribed Image Text:Cardinal Company is considering a five-year project that would require a $2,955,000 investment in equipment with a useful life of five years and no salvage value. The company's discount rate is 18%. The project would provide net operating income in each of five years as follows: Sales Variable expenses Contribution margin Fixed expenses: out-of-pocket costs Depreciation $ 2,865,000 1,015,000 1,850,000 Advertising, salaries, and other fixed $ 750,000 591,000 Total fixed expenses 1,341,000 $ 509,000 Net operating income Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table. Foundational 12-15 (Algo) 15. Assume a postaudit showed that all estimates (including total sales) vlere exactly correct except for the variable expense ratio, which actually turned out to be 45%. What was the project's actual simple rate of return? (Round your answer to 2 decimal places.)
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