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 ,101,000
Contribution margin 1,760,000
Fixed expenses: Advertising, salaries, and other fixed out-of-pocket costs $ 705,000 Depreciation 513,000 Total fixed expenses 1,218,000
Net operating income $ 542,000
Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables.
Required:
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, other intermediate calculations and final answer to the nearest whole dollar.)