6Cardinal Company is considering a project that would require a $2,805,000 investment in equipment with a useful life of five years. Atthe end of five years, the project would terminate and the equipment would be sold for its salvage value of $400,000. The company'sdiscount rate is 14%. The project would provide net operating income each year as follows:SalesVariable expensesContribution marginFixed expenses:Advertising, salaries, and other fixed out-of-pocket costsDepreciationTotal fixed expensesNet operating income.$ 642,000481,000Present value$2,741,0001,125,0001,616,0001,123,000$ 493,000Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.Required:What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer tothe nearest dollar amount.)

Net Present Value (NPV) is a financial concept widely used in investment analysis and capital…

Answered: Required: What is the present value of…

Required: What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer to the nearest dollar amount.)

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

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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Question

6
Cardinal Company is considering a project that would require a $2,805,000 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 $400,000. The company's
discount rate is 14%. The project would provide net operating income each year as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs
Depreciation
Total fixed expenses
Net operating income.
$ 642,000
481,000
Present value
$2,741,000
1,125,000
1,616,000
1,123,000
$ 493,000
Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.
Required:
What is the present value of the project's annual net cash inflows? (Round discount factor(s) to 3 decimal places and final answer to
the nearest dollar amount.)

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