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.) (Use appropriate factor(s) from the tables provided.) $ 450,000 8 years Initial investment (for two hot air balloons) Useful life Salvage value Annual net income generated BBS's cost of capital $ 42,000 35,550 118 Assume straight line depreciation method is used. Required: Help BBS evaluate this project by calculating each of the following: 1. Accounting rate of return. (Round your answer to 2 decimal places.) 2. Payback period. (Round your answer to 2 decimal places.) 3. Net present value (NPV). (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 14 percent. (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.) 1. Accounting rate of return 2. Payback period years 3. Net present value 4. Net present value assuming 14% cost of capital

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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.) (Use appropriate factor(s) from the tables provided.)


Initial investment (for two hot air balloons)	$	450,000
Useful life		8	years
Salvage value	$	42,000
Annual net income generated		35,550
BBS’s cost of capital		11	%

Assume straight line depreciation method is used.

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

1. Accounting rate of return. (Round your answer to 2 decimal places.)
2. Payback period. (Round your answer to 2 decimal places.)
3. Net present value (NPV). (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 14 percent. (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.)

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.) (Use appropriate factor(s) from the tables provided.)
$ 450,000
8 years
Initial investment (for two hot air balloons)
Useful life
Salvage value
Annual net income generated
BBS's cost of capital
$ 42,000
35,550
118
Assume straight line depreciation method is used.
Required:
Help BBS evaluate this project by calculating each of the following:
1. Accounting rate of return. (Round your answer to 2 decimal places.)
2. Payback period. (Round your answer to 2 decimal places.)
3. Net present value (NPV). (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 14 percent. (Do not round intermediate calculations. Negative amount
should be indicated by a minus sign. Round the final answer to nearest whole dollar.)
1. Accounting rate of return
2. Payback period
years
3. Net present value
4. Net present value assuming 14% cost of capital

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