Cardinal Company is considering a project that would require a $2,765,000 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 $200,000. The company’s discount rate is 12%. The project would provide net operating income each year as follows:
| Sales | $ | 2,861,000 | ||
| Variable expenses | 1,101,000 | |||
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| Contribution margin | 1,760,000 | |||
| Fixed expenses: | ||||
| Advertising, salaries, and other fixed out of pocket costs |
$ | 705,000 | ||
| Depreciation | 513,000 | |||
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| Total fixed expenses | 1,218,000 | |||
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| Net operating income | $ | 542,000 | ||
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Click here to view Exhibit 11B 2, to determine the appropriate discount factor(s) using table.
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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.) |
| Present value | $ |
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