Question

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: $ 240,00 1 year Initial investment Useful life Salvage value Annual net income generated FCA's cost of capital $ 25,00 5,400 Assume straight line depreciation method is used. 3. Help FCA evaluate this project by calculating each of the following: Net present value (NPV) (Future Value of $1. Present Value of $1. Future Value Annuity of $1. Present Value Annuity.o51) (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) Net Present Value

Answer 1

Initial Investment = $240,000
Salvage Value = $25,000
Useful Life = 10 years

Annual Depreciation = (Initial Investment - Salvage Value) / Useful Life
Annual Depreciation = ($240,000 - $25,000) / 10
Annual Depreciation = $21,500

Annual Net Cash Flow = Annual Net Income + Annual Depreciation
Annual Net Cash Flow = $5,400 + $21,500
Annual Net Cash Flow = $26,900

Cost of Capital = 8%

Net Present Value = -$240,000 + $26,900 * PVA of $1 (8%, 10) + $25,000 * PV of $1 (8%, 10)
Net Present Value = -$240,000 + $26,900 * 6.7101 + $25,000 * 0.4632
Net Present Value = -$47,918