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
Useful life	$	10	years
Salvage value		10,000
Annual net income generated	$	3,000
FCA's cost of capital		8	%

Assume straight line depreciation method is used.

rev: 04_20_2017_QC_CS-86552

3.

value: 2.85 points

Required information

Required: Help FCA evaluate this project by calculating each of the following: 1. Accounting rate of return. (Round your answer to 2 decimal places.)

References

eBook & Resources

WorksheetLearning Objective: 11-01 Calculate the accounting rate of return and describe its major weaknesses.Learning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Difficulty: 3 HardLearning Objective: 11-02 Calculate the payback period and describe its major weaknesses.Learning Objective: 11-04 Predict the internal rate of return and describe its relationship to net present value.

Check my work

4.

value: 2.85 points

Required information

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

References

eBook & Resources

WorksheetLearning Objective: 11-01 Calculate the accounting rate of return and describe its major weaknesses.Learning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Difficulty: 3 HardLearning Objective: 11-02 Calculate the payback period and describe its major weaknesses.Learning Objective: 11-04 Predict the internal rate of return and describe its relationship to net present value.

Check my work

5.

value: 2.85 points

Required information

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.)

rev: 04_20_2017_QC_CS-86552

References

eBook & Resources

WorksheetLearning Objective: 11-01 Calculate the accounting rate of return and describe its major weaknesses.Learning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Difficulty: 3 HardLearning Objective: 11-02 Calculate the payback period and describe its major weaknesses.Learning Objective: 11-04 Predict the internal rate of return and describe its relationship to net present value.

Check my work

6.

value: 2.85 points

Required information

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.)

References

eBook & Resources

WorksheetLearning Objective: 11-01 Calculate the accounting rate of return and describe its major weaknesses.Learning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Difficulty: 3 HardLearning Objective: 11-02 Calculate the payback period and describe its major weaknesses.Learning Objective: 11-04 Predict the internal rate of return and describe its relationship to net present value.

Check my work

7.

value: 2.90 points

Required information

5.	Without doing any calculations, what is the project's IRR?

Greater than 8%

Between 3% and 8%

Less than 3%