After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, well-known magazine subscription company. It has arrived with the good news that you are the big winner, having won $23 million. You have three options. (a) Receive $1.15 million per year for the next 20 years. (b) Have $8.75 million today. (c) Have $2.75 million today and receive $850,000 for each of the next 20 years. Your financial adviser tells you that it is reasonable to expect to earn 12 percent on investments Required: 1. Calculate the present value of each option (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. Enter your answers in dollars, not in millions.) Present Value Option A Option B Option C 2. Determine which option you prefer Option A Option Option 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: (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.) Initial investment (for two hot air balloons) Useful life Salvage value Annual net income generated BES's cost of capital $ 309,000 6 years $ 57,000 26,883 115 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 2 decimal places.) 2. Payback period. (Round your answer to 2 decimal places.) 3. Net present value (NPV) (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 14 percent (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.) 1 Accounting rate of return 2 Payback period 3. Net present value 4. Net present value assuming 14% cost of capital 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 Useful life Salvage value Annual net income generated FCA's cost of capital $ 120,000 10 years 10,000 $ 3,000 83 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 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 Useful life Salvage value Annual net income generated FCA's cost of capital 120,000 10 years 10,000 3,000 8 $ Assume straight line depreciation method is used 2. Help FCA evaluate this project by calculating each of the following: Payback period (Round your answer to 2 decimal places.) Payback Period O years 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 $120,000 10 years 10.000 & 3,000 Salvage value Annual not income generated FCA's cost of capital Assume straight line depreciation method is used 3. Help FCA evaluate this project by calculating each of the following: Net present value (NPV). (Euture 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.) 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 Useful life Salvage Value Annual net income generated FCA'S cost of capital $ 120,000 10 years 10,000 3,000 8% Assume straight line depreciation method is used 4. Help FCA evaluate this project by calculating each of the following: Recalculate FCA 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.) 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 Useful life Salvage value Annual net income generated FCA's cost of capital $ 120,000 10 years 10,000 53,000 82 Assume straight line depreciation method is used. Without doing any calculations, what is the project's IRR? Multiple Choice Between 3% and 8% Less than 3% Greater than 8% Merrill Corp. has the following information available about a potential capital investment: Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $1,800,000 $ 200,000 8 years $ 240,000 lex Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent. 3. Calculate the net present value using a 15 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 15 percent Complete this question by entering your answers in the tabs below. Req 1 and 2 Req 3 and 4 1. Calculate the project's net present value. (Future Value of $1. Present Value of $1. Future Value Annuity of $ Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.) 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent. Show less 1. Net Present Value 2 Internal Rate of Return (IRR) RT Req 3 and 4 > Merrill Corp, has the following information available about a potential capital investment Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $1,800,000 $ 200,000 8 years $ 240,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent 3. Calculate the net present value using a 15 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 15 percent. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 and 4 3. Calculate the net present value using a 15 percent discount rate. (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. Round the final answer to nearest whole dollar.) 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 15 percent. Show less 3. 4 Net Present Value Internal Rate of Return (IRR) Merrill Corp, has the following information available about a potential capital investment Initial investment Annual net income Expected life Salvage value Merrill's cost of capital $1,800,000 $ 200,000 8 years $ 240,000 10% Assume straight line depreciation method is used. Required: 1. Calculate the project's net present value. 2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent 3. Calculate the net present value using a 15 percent discount rate. 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 15 percent. Complete this question by entering your answers in the tabs below. Req 1 and 2 Reg 3 and 4 3. Calculate the net present value using a 15 percent discount rate. (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. Round the final answer to nearest whole dollar.) 4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 15 percent. Show less 3. 4 Net Present Value Internal Rate of Return (IRR)