Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to u

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.

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.)

Initial investment $ 290,000 Useful life $ 10 years Salvage value 25,000 Annual net income generated $ 6,400 FCA's cost of capital 9 %

Explanation / Answer

Net present value = Present value of cash inflow-Present value of cash outflow

Annual cash inflow = 6400+(290000-25000/10) = 32900

Net present value = (32900*6.41766+25000*0.42241)-290000

Net present value = -68299

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