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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	$	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 each of the following: 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. Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.)

Net Present Value _____________

Answer 1

Depeciation = (initial investment - salvage value)/life = 270,000 - 25,000/10 = $24,500

Annual cash flows for years 1-10 will be = 6,000+24,500 = 30,500

Years		Net cash Inflow	PV Factor 8%	Present value
1	Cash inflow	30,500	0.92593	28,241
2	Cash inflow	30,500	0.85734	26,149
3	Cash inflow	30,500	0.79383	24,212
4	Cash inflow	30,500	0.73503	22,418
5	Cash inflow	30,500	0.68058	20,758
6	Cash inflow	30,500	0.63017	19,220
7	Cash inflow	30,500	0.58349	17,796
8	Cash inflow	30,500	0.54027	16,478
9	Cash inflow	30,500	0.50025	15,258
10	Cash inflow	30,500	0.46319	14,127
10	Salvage value	25,000	0.46319	11,580
Total PV of Inflows				2,16,237
0	Initial Investment			2,70,000
Net Present value on the Project				-53,763