questions 3 and 4 please? r 11 . Homework ezto.rmheducation.com/hm.tpx?.?.581766

Question

questions 3 and 4 please?

r 11 . Homework ezto.rmheducation.com/hm.tpx?.?.5817668864 060036-15247 7991 5531 4.00 points Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sur Initial investment (for two hot air balloons) $ 421 000 Useful life 9 years S 52,000 38,311 Salvage value Aamuai net income generated 11% BBS s cost of capital Assume straight line depreciation method is used Required: Help BBS evaluate this project by calculating each of the following 1. Accounting rate of return (Round your answer to 1 decimal place.) Rate 2. Payback penod. (Round your answer to 2 decimal places.) 5.31 Years 0. Net present value (NPV) (Future Yalue of s Round the final answer to nearest whole dollar) Present Value os1 4. Recalculate the NPV assuming BBS's cost of capitial is 14 percent (Hiuture Value ot $1. Present value of $1. Future Valu should be indicated by a minus sign. Round the final answer to nearest whole dollar)

Explanation / Answer

1. Accounting rate of return = 9.1%

Accounting Rate of return = (Net Income / Initial Investments) * 100

Depreciation = ($421000 - 52000) / 9 = $41000

Cash Flow = Net Income + Depreciation

                   = $38311 + 41000         = $79311

Accounting Rate of return       = ($38311 / 421000) * 100 = 9.1 %

2. Payback period = 5.31 Years

= Initial Investment / cash flow

= $421000 / $79311

= 5.31 Years

3. Net present value (NPV) at 11% = $38,477

= [ $79311 x (PVAF 11%,9 Years) + $52000 x (PVF 11%,9 Years) ] - $421000

= [ ($79311 x 5.53705) + ($52000 x 0.39092) ] - $421000

= $38,477

4. Net present value (NPV) at 14% = - $12,707 (Negative)

= [ $79311 x (PVAF 14%,9 Years) + $52000 x (PVF 14%,9 Years) ] - $421000

= [ ($79311 x 4.94638) + ($52000 x 0.30751) ] - $421000

= -$12,707 (Negative)

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