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. $ 423,000 9 years $ 45,000 $ 38,493 98 Note: Round your answer to 2 decimal places. 3. 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. 4, Recalculate the NPV assuming BBS's cost of capital is 12 percent.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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.)
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.
$ 423,000
9 years
$ 45,000
$ 38,493
98
Note: Round your answer to 2 decimal places.
3. 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.
4, Recalculate the NPV assuming BBS's cost of capital is 12 percent.
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. $ 423,000 9 years $ 45,000 $ 38,493 98 Note: Round your answer to 2 decimal places. 3. 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. 4, Recalculate the NPV assuming BBS's cost of capital is 12 percent.
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