PA11-4 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return [LO 11-1, 11-2, 11-3, 11-4]

[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	$	230,000
Useful life	$	10	years
Salvage value		25,000
Annual net income generated	$	5,200
FCA's cost of capital		7	%

Assume straight line depreciation method is used.

rev: 04_20_2017_QC_CS-86552

References

Section BreakPA11-4 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return [LO 11-1, 11-2, 11-3, 11-4]

5.

value: 1.11 points

Required information

PA11-4 Part 1

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: 11-04 Predict the internal rate of return and describe its relationship to net present value.

PA11-4 Part 1Learning Objective: 11-02 Calculate the payback period and describe its major weaknesses.

Difficulty: 3 HardLearning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Ask your instructor a questionCheck my work

6.

value: 1.11 points

Required information

PA11-4 Part 2

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: 11-04 Predict the internal rate of return and describe its relationship to net present value.

PA11-4 Part 2Learning Objective: 11-02 Calculate the payback period and describe its major weaknesses.

Difficulty: 3 HardLearning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Ask your instructor a questionCheck my work

7.

value: 1.11 points

Required information

PA11-4 Part 3

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: 11-04 Predict the internal rate of return and describe its relationship to net present value.

PA11-4 Part 3Learning Objective: 11-02 Calculate the payback period and describe its major weaknesses.

Difficulty: 3 HardLearning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Ask your instructor a questionCheck my work

8.

value: 1.11 points

Required information

PA11-4 Part 4

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: 11-04 Predict the internal rate of return and describe its relationship to net present value.

PA11-4 Part 4Learning Objective: 11-02 Calculate the payback period and describe its major weaknesses.

Difficulty: 3 HardLearning Objective: 11-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques.

Ask your instructor a questionCheck my work

9.

value: 1.11 points

Required information

PA11-4 Part 5

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

Less than 3%

Between 3% and 7%

Greater than 7%