Question

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 ......... $ 110,000
Useful life ............. 10 years
Salvage value ........... $ 10,000
Annual net income generated ..... $ 4,200
FCA’s cost of capital ........ 10%

Required:
Help FCA evaluate this project by calculating each of the following:
1. Accounting rate of return.
2. Payback period.
3. Net present value (NPV).
4. Recalculate FCA’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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  • CreatedFebruary 27, 2015
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