Q: Balloons By Sunset (BBS) is considering the purchase of two new hot air ballo

Question

Q:

Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows:

Assume straight line depreciation method is used.
  

Accounting rate of return. (Round your answer to 1 decimal place.)

Payback period. (Round your answer to 2 decimal places.)

Net present value (NPV). (Future Value of $1, Present Value of $1, Future Value Annuity of $1,Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign.)

4. Recalculate the NPV assuming BBS's cost of capital is 15 percent. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign.)

Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Various information about the proposed investment follows:

Explanation / Answer

364000 45000 Year net income dep income after tax before depreciation Present value @14% present value of cash inflow 1 33124 45000 78124 0.877193 68529.82 2 33124 45000 78124 0.769468 60113.88 3 33124 45000 78124 0.674972 52731.47 4 33124 45000 78124 0.59208 46255.68 5 33124 45000 78124 0.519369 40575.16 6 33124 45000 78124 0.455587 35592.24 7 33124 45000 78124 0.399637 31221.27 49000 0.399637 19582.23 sum of present value of cash inflow 354601.8 Cash outflow 364000 NPV -9398.24 ACCounting rate of return Pay Back Period Year net income Year net income dep income after tax before depreciation cumulative cash flow 1 33124 1 33124 45000 78124 78124 2 33124 2 33124 45000 78124 156248 3 33124 3 33124 45000 78124 234372 4 33124 4 33124 45000 78124 312496 5 33124 5 33124 45000 78124 51504 amount to be recovered in Year 5 6 33124 6 33124 45000 78124 7 33124 7 33124 45000 78124 Years months Accounting rate of return (average return / average investment)*100 Pay back period 4 0.65926 4.65926 Years Average return 33124 Average investment 157500 Average rate of return 21.03111111 Percent NPV @15% Year net income dep income after tax before depreciation Present value @15% present value of cash inflow 1 33124 45000 78124 0.869565 67933.91 2 33124 45000 78124 0.756144 59072.97 3 33124 45000 78124 0.657516 51367.8 4 33124 45000 78124 0.571753 44667.65 5 33124 45000 78124 0.497177 38841.44 6 33124 45000 78124 0.432328 33775.16 7 33124 45000 78124 0.375937 29369.71 49000 0.375937 18420.91 sum of present value of cash inflow 343449.5 Cash outflow 364000 NPV -20550.5

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