
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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![15
7.11
es
Required information
The Foundational 15 (Algo) [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6]
[The following information applies to the questions displayed below.)
Cardinal Company is considering a five-year project that would require a $2,850,000 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!
Advertising, salaries, and other fixed
out-of-pocket costs
$799,000
570,000
Depreciation
Total fixed expenses
1,369,000
Net operating income
$ 477,000
Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table.
Payback period
$ 2,857,000
1,011,000
1,846,000
Foundational 12-14 (Algo)
14. 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 project's actual payback period? (Round your answer to 2 decimal places.)
years](https://content.bartleby.com/qna-images/question/c94e6d1f-417b-4288-9be7-d0bb82266d6b/adee2c91-f645-42c4-8f2d-bdb2f353e6d4/rsyyd2v_thumbnail.jpeg)
Transcribed Image Text:15
7.11
es
Required information
The Foundational 15 (Algo) [LO12-1, LO12-2, LO12-3, LO12-5, LO12-6]
[The following information applies to the questions displayed below.)
Cardinal Company is considering a five-year project that would require a $2,850,000 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!
Advertising, salaries, and other fixed
out-of-pocket costs
$799,000
570,000
Depreciation
Total fixed expenses
1,369,000
Net operating income
$ 477,000
Click here to view Exhibit 128-1 and Exhibit 128-2, to determine the appropriate discount factor(s) using table.
Payback period
$ 2,857,000
1,011,000
1,846,000
Foundational 12-14 (Algo)
14. 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 project's actual payback period? (Round your answer to 2 decimal places.)
years
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