Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to u
ID: 2519568 • Letter: F
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:
Assume straight line depreciation method is used.
1. Payback period. (Round your answer to 2 decimal places.)
2. 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.)
3. 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.)
Initial investment $ 210,000 Useful life $ 10 years Salvage value 20,000 Annual net income generated $ 4,800 FCA's cost of capital 7 %Explanation / Answer
Initial Investment: 210,000 Useful life 10 yrs Annual depreciation (210000-20000)10 19000 Annual net income 4800 Annual cash inflow (4800+19000) 23800 Payback period: Initial investment / Annual cash inflows 210,000 /23800 = 8.82 years Net present value at 7% Present value of annual cash inflows of $ 23800 167161.7 ($ 23800* Annuity factor at 7% for Year-10 i.e 7.0236) Present value of salvage value 10166 ($20000*PVf of Yyear-10 i.e. 0.5083) Total Inflows 177327.7 Less: Initial investment 210,000 NPV -32,672 Net present Value at 3% Present value of annual cash inflows of $ 23800 203014 ($ 23800* Annuity factor at 3% for Year-10 i.e 8.53) Present value of salvage value 14882 ($20000*PVf of Yyear-10 i.e. 0.7441) Total Inflows 217896 Less: Initial investment 210,000 NPV 7,896
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.