High Flyers is considering the purchase of two new hot air balloons so that it can expand
Question:
High Flyers 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 2 balloons…………………..)…………..…$500,000
Useful life………………………………………………………………………..5 years
Salvage Value…………………………………………………………………$150,000
Annual net income generated from additional flights………$60,000
Cost of Capital for High Flyers………………………………………………11%
Help High Flyers evaluate this project by calculating:
1. Net Present Value( the long way- see p. 355 for example)
2. Net Present Value (using the excel formula NPV)
3. Recalculate NPV with cost of capital @16%
4. Based on your calculation of NPV, what would you estimate your project’s internal rate of return to be?
Managerial Accounting
ISBN: 978-0078025518
2nd edition
Authors: Stacey Whitecotton, Robert Libby, Fred Phillips