Cardinal Company is considering a project that would require a $2,975,000 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 $300,000. The company's discount rate is 14%. The project would provide net
operating income each year as follows:
Sales
Variable expenses
Contribution margin
Fixed expenses:
Advertising, salaries, and other
fixed out-of-pocket costs
Depreciation
Total fixed expenses
Net operating income
$ 2,735,000
1,000,000
1,735,000
$ 735,000
535,000
1,270,000
$ 465,000
