Cardinal Company is considering a project that would require a $2,815,000 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 16%. The project would provide net operating income each year as follows:
Sales $ 2,863,000
Variable expenses $ 1,014,000
Contribution margin $ 1,849,000
Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 781,000 Depreciation $ 483,000 Total fixed expenses $ 1,264,000
Net operating income $ 585,000
Required:
If the equipment’s salvage value was $600,000 instead of $400,000, what would be the project’s simple rate of return? (Round your answer to 2 decimal places.)