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,$ Future 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$)$ $ $415,000$

Useful life $7$ years

Salvage value $ $44,000$

Annual net income generated $ $36,520$

BBS$$s cost of capital $12\%$

Assume straight line depreciation method is used.

Required:

Help BBS evaluate this project by calculating each of the following:

Accounting rate of return.

Note: Round your answer to $2$ decimal places.

Payback period.

Note: Round your answer to $2$ decimal places.

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.

Recalculate the NPV assuming BBS$\text{'}$s cost of capital is $15$ percent.

Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.Refer to the accompanying figure.

The graph plots output versus inflation. Two horizontal lines intersect two diagonal lines and a vertical line in the first quadrant.The graph plots output versus inflation. Two parallel diagonal lines marked A D and A D superscript $1$ start from the top left of the first quadrant and come diagonally down and to the right and end at the bottom right of the first quadrant by intersecting two parallel horizontal lines marked S R A S and S R A S prime. The diagonal line marked A D intersects the horizontal line marked S R A S prime at point A at $($Y superscript $1,$ pi superscript $1)$ and the horizontal line marked S R A S at point C at $($Y prime, pi$).$ The diagonal line marked A D superscript $1$ intersects the horizontal line marked S R A S prime at point B at $($Y prime, pi superscript $1)$ and the horizontal line marked S R A S at point D at $($Y superscript $2,$ pi$).$ A vertical line is marked at Y prime from the horizontal axis which intersects the points C at $($Y prime, pi$)$ and the point B at $($Y prime, pi superscript $1).$

Starting from long$-$run equilibrium at point C$,$ an increase in government spending that increases aggregate demand from AD to AD$1$ will lead to a short$-$run equilibrium at point $\_\_\_\_\_$ creating $\_\_\_\_\_$ gap.

Multiple Choice

D; an expansionary

B; an expansionary

A; a recessionary

B; no output