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: (Future Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1) Note: Use appropriate factor(s) from the tables provided. Initial investment (for two hot air balloons) Useful life Salvage value Annual net income generated 885's cost of capital Assume straight line depreciation method is used. Required: Help BBS evaluate this project by calculating each of the following: 1. Accounting rate of return. Note: Round your answer to 2 decimal places. 1 Accounting rate of return 2. Payback period 2. Payback period. Note: Round your answer to 2 decimal places. 3. Net present value (NPV) Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. 3. Net present value 4 Net present value assuming 11% cost of capital $ 540,000 4. Recalculate the NPV assuming BBS's cost of capital is 11 percent Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. S 9 years $ 45,000 $ 44,250 102.702 8.20 % 5.44 years
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: (Future Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1) Note: Use appropriate factor(s) from the tables provided. Initial investment (for two hot air balloons) Useful life Salvage value Annual net income generated 885's cost of capital Assume straight line depreciation method is used. Required: Help BBS evaluate this project by calculating each of the following: 1. Accounting rate of return. Note: Round your answer to 2 decimal places. 1 Accounting rate of return 2. Payback period 2. Payback period. Note: Round your answer to 2 decimal places. 3. Net present value (NPV) Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. 3. Net present value 4 Net present value assuming 11% cost of capital $ 540,000 4. Recalculate the NPV assuming BBS's cost of capital is 11 percent Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. S 9 years $ 45,000 $ 44,250 102.702 8.20 % 5.44 years
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 4PB
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Transcribed Image Text: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: (Euture Value of $1. Present Value of $1. Euture Value Annuity of $1. Present Value
Annuity of $1)
Note: Use appropriate factor(s) from the tables provided.
Initial investment (for two hot air balloons)
Useful life
Salvage value
Annual net income generated
BBS's cost of capital
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of the following:
1. Accounting rate of return.
Note: Round your answer to 2 decimal places.
2. Payback period.
Note: Round your answer to 2 decimal places.
1 Accounting rate of return
2 Payback period
3. Net present value (NPV)
Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to
nearest whole dollar.
3. Net present value
4 Net present value assuming 11% cost of capital -
$540,000
$ 45,000.
$ 44,200
4. Recalculate the NPV assuming BBS's cost of capital is 11 percent.
Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to
nearest whole dollar.
$
9 years
8.20 %
5:44 years
102.702
8%
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