Balloons By Sunset (BBS) is considering the purchase of two new hotair balloons so that it can expand its desert sunset tours. Variousinformation about the proposed investmentfollows:
Initial investment (for two hot air balloons) $ 449,000 Usefullife 8 years Salvagevalue $ 57,000 Annual netincome generated 39,512 BBSâs cost ofcapital 12 %
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of thefollowing:
1. Accounting rate of return. (Round your answer to 1 decimalplace.)
2. Payback period. (Round your answer to 2 decimalplaces.)
3. Net present value (NPV). (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriatefactor(s) from the tables provided. Do not round intermediatecalculations. Negative amount should be indicated by a minus sign.Round the final answer to nearest wholedollar.)
4. Recalculate the NPV assuming BBS's cost ofcapital is 15 percent. (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriatefactor(s) from the tables provided. Do not round intermediatecalculations. Negative amount should be indicated by a minus sign.Round the final answer to nearest wholedollar.)
Balloons By Sunset (BBS) is considering the purchase of two new hotair balloons so that it can expand its desert sunset tours. Variousinformation about the proposed investmentfollows:
| Initial investment (for two hot air balloons) | $ | 449,000 | |||||
| Usefullife | 8 | years | |||||
| Salvagevalue | $ | 57,000 | |||||
| Annual netincome generated | 39,512 | ||||||
| BBSâs cost ofcapital | 12 | % | |||||
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of thefollowing:
1. Accounting rate of return. (Round your answer to 1 decimalplace.)
2. Payback period. (Round your answer to 2 decimalplaces.)
3. Net present value (NPV). (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriatefactor(s) from the tables provided. Do not round intermediatecalculations. Negative amount should be indicated by a minus sign.Round the final answer to nearest wholedollar.)
4. Recalculate the NPV assuming BBS's cost ofcapital is 15 percent. (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriatefactor(s) from the tables provided. Do not round intermediatecalculations. Negative amount should be indicated by a minus sign.Round the final answer to nearest wholedollar.)
