Reference no: EM132316111

Question

Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to use in its wing-walking demonstrations and aerial tour business. Various information about the proposed investment follows:

Initial investment                    $120,000

Useful life                              $10years

Salvage value                         10,000

Annual net income generated    $3,000

FCA's cost of capital                  8%

Assume straight line depreciation method is used.

Help FCA evaluate this project by calculating each of the following:

1. Accounting rate of return. (Round your answer to 2 decimal places.)

Accounting Rate of Return=

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

Payback Period=

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. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.)

Net Present Value=

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.)

Net Present Value=

5.Without doing any calculations, what is the project's IRR?

A.Greater than 8%

B.Between 3% and 8%

C.Less than 3%