Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to u
ID: 2647788 • Letter: F
Question
Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to use in its wingwalking demonstrations and aerial tour business. Various information about the proposed investment follows:
Initial investment
$
190,000
Useful life
10
years
Salvage value
$
20,000
Annual net income generated
$
4,400
FCA's cost of capital
6
%
Assume straight line depreciation method is used.
Required:
Help FCA evaluate this project by calculating each of the following:
1.
Accounting rate of return. (Round your answer to 2 decimal places.)
2.
Payback period. (Round your answer to 2 decimal places.)
3.
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.)
4.
Recalculate FCA's NPV assuming the cost of capital is 3% 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.Round your final answer to the nearest whole dollar amount.)
5.
Without doing any calculations, what is the project's IRR?
Less than 3%
Greater than 6%
Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to use in its wingwalking demonstrations and aerial tour business. Various information about the proposed investment follows:
Explanation / Answer
Investment (cost) = $190,000
Useful life = 10 years
Salvage value = $ 20000
Annual net income = $ 4400
FCA cost of capital = 6%
Straight line depreciation
Depreciation = cost
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.