Question
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
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 | $ | 180,000 | |||||
| Useful life | $ | 10 | years | ||||
| Salvage value | 20,000 | ||||||
| Annual net income generated | $ | 4,200 | |||||
| FCA's cost of capital | 6 | % | |||||
Assume straight line depreciation method is used. Help FCA evaluate this project by calculating each of the following: 1. Accounting rate of return.
2. Payback period.
3. Net present value (NPV).
4. Recalculate FCA's NPV assuming the cost of capital is 3% percent.
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Auditing The Art and Science of Assurance Engagements
Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Joanne C. Jones
13th Canadian edition
133405508, 978-0133405507
