Question

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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:

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

	Accounting Rate of Return %

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

	Payback Period years

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.)

	Net Present Value

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.)

    

	Net Present Value

Answer 1