Foundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]
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[The following information applies to the questions displayed below.] |
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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: |
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Sales |
$ |
2,869,000 |
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Variable expenses |
1,126,000 |
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Contribution margin |
1,743,000 |
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Fixed expenses: |
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Advertising, salaries, and other |
$ |
709,000 |
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Depreciation |
569,000 |
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Total fixed expenses |
1,278,000 |
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Net operating income |
$ |
465,000 |
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Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. |
References
Section BreakFoundational [LO13-1, LO13-2, LO13-3, LO13-5, LO13-6]
1.
value:
0.21 points
Required information
Foundational 13-1
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1. |
Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) |
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References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-1Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
2.
value:
0.21 points
Required information
Foundational 13-2
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2-a. |
What are the project’s annual net cash inflows? |
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2-b. |
What is the present value of the project’s annual net cash inflows? (Round discount factor to 3 decimal places) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-2Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
3.
value:
0.21 points
Required information
Foundational 13-3
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3. |
What is the project’s net present value? (Round discount factor(s) to 3 decimal places and final answer to the nearest whole dollar amount.) |
rev: 04_23_2015_QC_CS-13345
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-3Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
4.
value:
0.21 points
Required information
Foundational 13-5
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5. |
What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-5Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
5.
value:
0.21 points
Required information
Foundational 13-6
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6. |
What is the project’s internal rate of return?(Round your answer to nearest whole percent.) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-6Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
6.
value:
0.21 points
Required information
Foundational 13-7
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7. |
What is the project’s payback period? (Round your answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-7Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
7.
value:
0.21 points
Required information
Foundational 13-8
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8. |
What is the project’s simple rate of return for each of the five years?(Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-8Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
8.
value:
0.21 points
Required information
Foundational 13-9
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9. |
If the company’s discount rate was 14% instead of 12%, would you expect the project’s net present value to be higher, lower, or the same? |
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References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-9Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
9.
value:
0.21 points
Required information
Foundational 13-10
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10. |
If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project’s payback period to be higher, lower, or the same? |
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References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-10Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
10.
value:
0.21 points
Required information
Foundational 13-11
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11. |
If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project’s net present value to be higher, lower, or the same? |
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References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-11Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
11.
value:
0.21 points
Required information
Foundational 13-12
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12. |
If the equipment had a salvage value of $300,000 at the end of five years, would you expect the project’s simple rate of return to be higher, lower, or the same? |
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References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-12Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
12.
value:
0.21 points
Required information
Foundational 13-13
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13. |
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 50%. What was the project’s actual net present value? (Negative amount should be indicated by a minus sign. Round discount factor(s) to 3 decimal places, intermediate calculations and final answer to the nearest whole dollar amount.) |
rev: 04_23_2015_QC_CS-13345
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-13Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
13.
value:
0.21 points
Required information
Foundational 13-14
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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 50%. What was the project’s actual payback period? (Round your answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-14Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
14.
value:
0.27 points
Required information
Foundational 13-15
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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 50%. What was the project’s actual simple rate of return? (Round your answer to 2 decimal places. i.e. 0.12342 should be considered as 12.34%.) |
References
eBook & Resources
WorksheetLearning Objective: 13-01 Determine the payback period for an investment.Learning Objective: 13-05 Rank investment projects in order of preference.
Foundational 13-15Learning Objective: 13-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 13-06 Compute the simple rate of return for an investment.
Difficulty: 2 MediumLearning Objective: 13-03 Evaluate the acceptability of an investment project using the internal rate of return method.
Check my work
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