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 $500,000. The company’s discount rate is 18%. The project would provide net operating income each year as follows:
| Sales | $ | 2,865,000 | ||
| Variable expenses | 1,015,000 | |||
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| Contribution margin | 1,850,000 | |||
| Fixed expenses: | ||||
| Advertising, salaries, and other fixed out of pocket costs |
$ | 750,000 | ||
| Depreciation | 463,000 | |||
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| Total fixed expenses | 1,213,000 | |||
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| Net operating income | $ | 637,000 | ||
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Click here to view Exhibit 11B 1 andExhibit 11B 2, to determine the appropriate discount factor(s) using tables.
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What is the project profitability index for this project? (Round discount factor(s) to 3 decimal places and final answer to 2 decimal places.) |
| Project profitability index |