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

ID: 2647788 • Letter: F

Question

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

     

  Initial investment

$

190,000

  Useful life

10

years

  Salvage value

$

20,000

  Annual net income generated

$

4,400

  FCA's cost of capital

6

%

Assume straight line depreciation method is used.
    

Required:

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

1.

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

2.

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

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.)

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.)

   


  

5.

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

Less than 3%

Greater than 6%

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

Explanation / Answer

Investment (cost) = $190,000

Useful life = 10 years

Salvage value = $ 20000

Annual net income = $ 4400

FCA cost of capital = 6%

Straight line depreciation

Depreciation = cost