In: Accounting

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

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:

 Initial investment $200,000 Useful life$ 10 years Salvage value 20,000 Annual net income generated $4,600 FCA's cost of capital 9 % 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. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.) 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? Greater than 9% Less than 3% Between 3% and 9% ## Solutions ##### Expert Solution Answer:-1)-Accounting rate of return =(Average accounting income/Total Investment)*100 =($4600/$200000)*100 =2.3% 2)-Pay back period =Total investment/Total cash flow =$200000/($4600+$20000)

=8.13 years

Total cash flow =Net income + Annual depreciation

Annual depreciation =(Initial investments-Salvage value)/useful life

=($200000-$20000)/9 =$20000 3)- Net present value = Present value of cash inflows – Total outflows ={($24600*6.418)+($4600*0.422) -$200000}

=($157883+$1941) - $200000 =$159824-$200000 = ($40176)

4)- Net present value = Present value of cash inflows – Total outflows

={($24600*8.530)+($4600*0.744) - $200000} =($209838+$3422) -$200000

= $213260-$200000

= 13260

5)-The project IRR is between 3% and 9%.

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