Wing Walker Aces (WWA), Inc., is considering the purchase of a small plane to us

Question

Wing Walker Aces (WWA), 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:

Accounting rate of return. (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Recalculate WWA's NPV assuming the cost of capital is 6 percent. (Use Table 2 & Table 4.) (Round your intermediate calculations to 4 decimal places and final answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

Wing Walker Aces (WWA), 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:

Explanation / Answer

Hi,

Please find the answer as follows:

Depreciation = (110000-10000)/10 = 10000

Annual Cash Flows = 10000 + 5400 = 15400

Accounting Rate of Return = 5400/110000 =4.91% (when scrap value is not adjusted) and 5400/100000 = 5.4% (when scrap value is adjusted)

NPV@ 10% = - 110000 + 15400/(1+.10)^1 + 15400/(1+.10)^2 + 15400/(1+.10)^3 + 15400/(1+.10)^4 + 15400/(1+.10)^5 + 15400/(1+.10)^6 + 15400/(1+.10)^7 + 15400/(1+.10)^8 + 15400/(1+.10)^9 + 15400/(1+.10)^10 + 10000/(1+.10)^10= -11518

NPV @ 6% =

- 110000 + 15400/(1+.06)^1 + 15400/(1+.06)^2 + 15400/(1+.06)^3 + 15400/(1+.06)^4 + 15400/(1+.06)^5 + 15400/(1+.06)^6 + 15400/(1+.06)^7 + 15400/(1+.06)^8 + 15400/(1+.06)^9 + 15400/(1+.06)^10 + 10000/(1+.06)^10 = 8929

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.