Falcon Crest Aces (FCA), Inc., is considering the purchase of asmall plane to use in its wing-walking demonstrations and aerialtour business. Various information about the proposed investmentfollows:
Initial investment $ 200,000 Useful life $ 10 years Salvage value 20,000 Annual net income generated $ 4,600 FCA's cost of capital 9 %
Assume straight line depreciation method is used.
3. Net present value (NPV).
4. Recalculate FCA's NPV assuming the cost ofcapital is 3% percent.
Falcon Crest Aces (FCA), Inc., is considering the purchase of asmall plane to use in its wing-walking demonstrations and aerialtour business. Various information about the proposed investmentfollows:
| Initial investment | $ | 200,000 | |||||
| Useful life | $ | 10 | years | ||||
| Salvage value | 20,000 | ||||||
| Annual net income generated | $ | 4,600 | |||||
| FCA's cost of capital | 9 | % | |||||
Assume straight line depreciation method is used.
3. Net present value (NPV).
4. Recalculate FCA's NPV assuming the cost ofcapital is 3% percent.
Related questions
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.)
