Calculating Accounting Rate of Return, Payback Period, Net Present Value
Wing Walker Aces (WWA), 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 | $110,000 |
Useful life | 10years |
Salvage value | $10,000 |
Annual net income generated | $5,400 |
WWA’s cost of capital | 10% |
Required:
Help WWA evaluate this project by calculating each of the following:
1.Accounting rate of return.
2.Payback period.
3.Net present value (NPV).
4.Recalculate WWA’s NPV assuming the cost of capital is 6 percent.
5.Based on your calculations of NPV, what would you estimate the project’s internal rate of return to be?
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