Question

PA11-1 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return [LO 11-1, 11-2, 11-3, 11-4] 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: Initial investment (for two hot air balloons) Useful life Salvage value Annual net income generated BBS's cost of capital $ 356,000 7 years $ 48,000 26,700 8% 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 1 decimal place.) Accounting Rate of Return $ 13.2 % 2. Payback period. (Round your answer to 2 decimal places.) Payback Period L Years 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. 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 4. Recalculate the NPV assuming BBS's cost of capital is 11 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. Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.) Activate Windows Net Present Value Go to Settings to activate Windows.

Answer 1

accounting rate of retul 1 competation of x 100 AIRR E cash anflows P.9 Initial investment s § 26700x100 $ 356000 TARRE751 Sj computation of payback period - payback period & Initial anvestment cash Oneflows P a Los $ 356000 $ 26700 payback period a 13.33 years 3 computation of het present value NPV = present value of cash arflows =) Initial anvestment & present value of salvage value =[$26.700 x 52064) - $ 356000 + $ 48000X 0'5835 NPV = - $ 188 981

Padmavati 4) Computation of bet prebent vake it - cost of capital is lll. APV = ($26700x 4.7122) - $356000 + $ 4800 x 0:4817] NPV = - $207063