Problem:
Cardinal Company is considering a project that would require a $2,800,000 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 $2,845,000
Variable expenses 1,109,000
Contribution margin 1,736,000
Fixed expenses:
Advertising, salaries, and other fixed out-of-pocket costs $799,000
Depreciation 500,000
Total fixed expenses 1,299,000
Net operating income $437,000
Required:
Question: What is the present value of the project's annual net cash inflows?
Note: Be sure to show how you arrived at your answer.