Cardinal Company is considering a five-year project that would require a $2,955,000 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 $2,865,000Variable expenses 1,015,000Contribution margin 1,850,000Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs$750,000 Depreciation 591,000 Total fixed expenses 1,341,000Net operating income $509,000 Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.rev: 05_11_2019_QC_CS-168512 Required:1. Which item(s) in the income statement shown above will not affect cash flows

Depreciation is the decrease in value of asset due to wear and tear and due to passage of time.

Answered: operating income $ 509,000…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 2P

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Cardinal Company is considering a five-year project that would require a $2,955,000 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			$	2,865,000
Variable expenses				1,015,000
Contribution margin				1,850,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs	$	750,000
Depreciation		591,000
Total fixed expenses				1,341,000
Net operating income			$	509,000

Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using table.

rev: 05_11_2019_QC_CS-168512

Required:

1. Which item(s) in the income statement shown above will not affect cash flows

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