In: Accounting

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%

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%.

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
$
140,000
Useful life
$
10
years
Salvage value
10,000
Annual net income generated
$
3,400
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...

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
$
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...

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
$
310,000
Useful life
$
10
years
Salvage value
25,000
Annual net income generated
$
6,800
FCA's cost of capital
7
%
Assume straight line depreciation method is used.
Required:
Help FCA evaluate this project by calculating each of the
following:
1. Accounting rate of return.
3. Help...

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
$
210,000
Useful life
$
10
years
Salvage value
20,000
Annual net income generated
$
4,800
FCA's cost of capital
7
%
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,...

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
$
160,000
Useful life
$
10
years
Salvage value
20,000
Annual net income generated
$
3,800
FCA's cost of capital
10
%
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...

[The following information applies to the questions
displayed below.]
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
$
280,000
Useful life
$
10
years
Salvage value
25,000
Annual net income generated
$
6,200
FCA's cost of capital
8
%
Assume straight line depreciation method is used.
Required:
Help FCA evaluate this project by calculating each of...

[The following information applies to the questions
displayed below.]
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
$
260,000
Useful life
$
10
years
Salvage value
25,000
Annual net income generated
$
5,800
FCA's cost of capital
7
%
Assume straight line depreciation method is used.
3. Net present value (NPV). (Future Value of
$1, Present...

Required information
[The following information applies to the questions
displayed below.]
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
$
270,000
Useful life
$
10
years
Salvage value
25,000
Annual net income generated
$
6,000
FCA's cost of capital
8
%
Assume straight line depreciation method is used.
3. Help FCA evaluate this project by
calculating...

As owner of Falcon Airlines, you are considering the purchase of
a new de-icing machine. The machine will be used to remove ice from
the wings of Falcon’s planes during winter. The new machine will
cost $98,000, shipping costs of $2,000, and also will require
$3,000 in working capital to support the new machine’s operation.
The equipment will be depreciated over a 3-year period using MACRS
and will have an expected salvage value of $4,000 at the end of its...

Northwest Records is considering the purchase of Seattle Sound,
Inc., a small company that promotes and manages blues rock bands.
The terms of the agreement require that Northwest pay the current
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executives estimate that the investment will generate annual net
cash flows of $250,000. They do not feel, however, that current
demand for music will extend beyond four years. Therefore, they
plan to liquidate the entire investment in Seattle Sound...

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