Question
In: Accounting
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return...
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return [LO 11-1, 11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment
follows:
| Initial investment (for two hot air balloons) | $ | 529,000 | |||||
| Useful life | 9 | years | |||||
| Salvage value | $ | 43,000 | |||||
| Annual net income generated | 48,139 | ||||||
| BBS’s cost of capital | 9 | % | |||||
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of the
following:
1. Accounting rate of return. (Round your
answer to 1 decimal place.)
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. Do not round intermediate calculations. Negative amount
should be indicated by a minus sign. Round the final answer to
nearest whole dollar.)
4. Recalculate the NPV assuming BBS's cost of
capital is 12 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. Do not
round intermediate calculations. Negative amount should be
indicated by a minus sign. Round the final answer to nearest whole
dollar.)
Solutions
ekkarill92 answered 1 year agoRelated Solutions
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return...
PA11-1 Calculating Accounting Rate of Return, Payback Period,
Net Present Value, Estimating Internal Rate of Return [LO 11-1,
11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment
follows:
Initial investment (for two hot
air balloons)
$
402,000
Useful life
9
years
Salvage value
$
51,000
Annual net income generated
34,572
BBS’s cost of capital
8
%
Assume...
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return...
PA11-1 Calculating Accounting Rate of Return, Payback Period,
Net Present Value, Estimating Internal Rate of Return [LO 11-1,
11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment
follows:
Initial investment (for two hot air balloons)
$
332,000
Useful life
6
years
Salvage value
$
50,000
Annual net income generated
30,876
BBS’s cost of capital
10
%
Assume...
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return...
PA11-1 Calculating Accounting Rate of Return, Payback Period,
Net Present Value, Estimating Internal Rate of Return [LO 11-1,
11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment
follows:
Initial investment (for two hot air balloons)
$
402,000
Useful life
9
years
Salvage value
$
42,000
Annual net income generated
35,778
BBS’s cost of capital
10
%
Assume...
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return...
PA11-1 Calculating Accounting Rate of Return, Payback Period,
Net Present Value, Estimating Internal Rate of Return [LO 11-1,
11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment
follows:
Initial investment (for two hot
air balloons)
$
437,000
Useful life
9
years
Salvage value
$
41,000
Annual net income generated
39,767
BBS’s cost of capital
10
%
Assume...
PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return...
PA11-1 Calculating Accounting Rate of Return, Payback Period,
Net Present Value, Estimating Internal Rate of Return [LO 11-1,
11-2, 11-3, 11-4]
Balloons By Sunset (BBS) is considering the purchase of two new
hot air balloons so that it can expand its desert sunset tours.
Various information about the proposed investment follows:
Initial investment (for two hot air balloons)
$ 432,000
Useful life 9 years
Salvage value $ 45,000
Annual net income generated
37,152 ...
Accounting Rate of Return Payback Period Net Present Value Internal Rate of Return Profitability Index 1)...
Accounting Rate of Return Payback Period Net Present Value
Internal Rate of Return Profitability Index 1) Select three of the
analytical tools and provide supportive statements explaining how
each can be used to screen and/or rank future available projects.
2) Select one of the analytical tools listed and provide supportive
statements explaining why you believe it provides the most
important information in the decision process.
PAYBACK, ACCOUNTING RATE OF RETURN, PRESENT VALUE, NET PRESENT VALUE, INTERNAL RATE OF RETURN All four...
PAYBACK, ACCOUNTING RATE OF RETURN, PRESENT VALUE, NET
PRESENT VALUE, INTERNAL RATE OF RETURN
All four parts are independent of all other parts. Assume that
all cash flows are after-tax cash flows:
a. Randy Willis is
considering investing in one of the following two projects. Either
project will require an investment of $10,000. The expected cash
flows for the two projects follow. Assume that each project is
depreciable.
Year Project
A Project B
1
$ 3,000
$3,000
2 ...
Payback Period, Net Present Value, and Internal Rate of Return An organization’s initial outlay for a...
Payback Period, Net Present Value, and Internal Rate of
Return
An organization’s initial outlay for a
proposed project is $2,000,000. Use the table below to calculate
the payback period, net present value, and internal rate of return
for the project.
Free Cash Flows
Year
Amount
Year
Amount
1
$0.00
6
$0.00
2
$0.00
7
$0.00
3
$1,000,000.00
8
$500,000.00
4
$50.00
9
$500,000.00
5
$750,000.00
10
$500,000.00
As the CEO of the organization, if the
firm’s cost of capital is...
Calculate the net present value, internal rate or return and payback period for an investment project...
Calculate the net present value, internal rate or return and
payback period for an investment project with the following cash
flows using a 5 percent cost of capital:
Year
0
1
2
3
Net Cash Flow
-$150,000
$62,000 $62,000 $62,000
Do you recommend the investment?
PAYBACK, ACCOUNTING RATE OF RETURN, NET PRESENT VALUE, INTERNAL RATE OF RETURN Ripit Company wants to...
PAYBACK, ACCOUNTING RATE OF RETURN, NET PRESENT VALUE,
INTERNAL RATE OF RETURN
Ripit Company wants to buy a numerically controlled (NC) machine
to be used in producing specially machined parts for manufacturers
of tractors The outlay required is $480,000. The NC equipment will
last five years with no expected salvage value. The expected
after-tax cash flows associated with the project follow:
Year
Cash Revenues Cash Expenses
1
$780,000
$600,000
2
780,000
600,000
3
780,000 ...
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