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) 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. 3. Net present value (NPV). $ 536,000 9 years $ 59,000 $ 49,848 10% Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. 4. Recalculate the NPV assuming BBS's cost of capital is 13 percent. Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. > Answer is not complete. 1. Accounting rate of return 9.30 % 2. Payback period 3. Net present value 5..21 years 4. Net present value assuming 13% cost of capital
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) 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. 3. Net present value (NPV). $ 536,000 9 years $ 59,000 $ 49,848 10% Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. 4. Recalculate the NPV assuming BBS's cost of capital is 13 percent. Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar. > Answer is not complete. 1. Accounting rate of return 9.30 % 2. Payback period 3. Net present value 5..21 years 4. Net present value assuming 13% cost of capital
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 9PB: Joliet Company is considering two alternative investments. The company requires an 18% return from...
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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: (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)
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.
3. Net present value (NPV).
$ 536,000
9 years
$ 59,000
$ 49,848
10%
Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to
nearest whole dollar.
4. Recalculate the NPV assuming BBS's cost of capital is 13 percent.
Note: Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to
nearest whole dollar.
> Answer is not complete.
1. Accounting rate of return
9.30 %
2. Payback period
3. Net present value
5..21 years
4. Net present value assuming 13% cost of capital
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