Cardinal Company is considering a five-year project that would require a $2,845,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,869,000 Variable expenses 1,126,000 Contribution margin 1,743,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 709,000 Depreciation 569,000 Total fixed expenses 1,278,000 Net operating income
Cardinal Company is considering a five-year project that would require a $2,845,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows: Sales $ 2,869,000 Variable expenses 1,126,000 Contribution margin 1,743,000 Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 709,000 Depreciation 569,000 Total fixed expenses 1,278,000 Net operating income
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 8P
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Cardinal Company is considering a five-year project that would require a $2,845,000 investment in equipment with a useful life of five years and no salvage value. The company’s discount rate is 12%. The project would provide net operating income in each of five years as follows:
Sales | $ | 2,869,000 | ||
Variable expenses | 1,126,000 | |||
Contribution margin | 1,743,000 | |||
Fixed expenses: | ||||
Advertising, salaries, and other fixed out-of-pocket costs | $ | 709,000 | ||
569,000 | ||||
Total fixed expenses | 1,278,000 | |||
Net operating income | $ | 465,000 | ||
See attached image to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.
1) Which item(s) in the income statement shown above will not affect
A - Sales
B - Variable Expenses
C - Advertising, salaries, and other fixed out-of-pocket costs expenses
D - Depreciation expense
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