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Blossom Skydiving Co. is owned by Nick and Amber. Business has been booming, as baby boomers want to prove their moxie, and the younger generations want to post crazy pictures on social media. So Nick and Amber are planning to purchase a second plane. Here are the specs: Purchase price $200,000 New cash operating costs per year 6,700 Additional gross margin in year 1 14,500 The owners would use this plane for 10 years, at which point they would sell it and try to replace it with a newer model. They estimate the salvage value to be $73,000 at that time. The company's tax rate is 20%. (a) Your answer is partially correct. Determine the ARR for Blossom Skydiving Co. for the first year with this new plane in service. (Round answer to 2 decimal places, e.g. 15.25%. Enter negative answers using either a negative sign preceding the number, e.g.-15.25% or parentheses, e.g. (15.25)%.) ARR -2.22% If just one year of income is considered for this purchase, will Nick and Amber move forward with the purchase? Nick and Amber would not move forward with the purchase.

Blossom Skydiving Co. is owned by Nick and Amber. Business has been booming, as baby boomers want to prove their moxie, and the younger generations want to post crazy pictures on social media. So Nick and Amber are planning to purchase a second plane. Here are the specs: Purchase price $200,000 New cash operating costs per year 6,700 Additional gross margin in year 1 14,500 The owners would use this plane for 10 years, at which point they would sell it and try to replace it with a newer model. They estimate the salvage value to be $73,000 at that time. The company's tax rate is 20%. (a) Your answer is partially correct. Determine the ARR for Blossom Skydiving Co. for the first year with this new plane in service. (Round answer to 2 decimal places, e.g. 15.25%. Enter negative answers using either a negative sign preceding the number, e.g.-15.25% or parentheses, e.g. (15.25)%.) ARR -2.22% If just one year of income is considered for this purchase, will Nick and Amber move forward with the purchase? Nick and Amber would not move forward with the purchase.

FINANCIAL ACCOUNTING
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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Blossom Skydiving Co. is owned by Nick and Amber. Business has been booming, as baby boomers want to prove their moxie, and the younger generations want to post crazy pictures on social media. So Nick and Amber are planning to purchase a second plane. Here are the specs: Purchase price $200,000 New cash operating costs per year 6,700 Additional gross margin in year 1 14,500 The owners would use this plane for 10 years, at which point they would sell it and try to replace it with a newer model. They estimate the salvage value to be $73,000 at that time. The company's tax rate is 20%. (a) Your answer is partially correct. Determine the ARR for Blossom Skydiving Co. for the first year with this new plane in service. (Round answer to 2 decimal places, e.g. 15.25%. Enter negative answers using either a negative sign preceding the number, e.g.-15.25% or parentheses, e.g. (15.25)%.) ARR -2.22% If just one year of income is considered for this purchase, will Nick and Amber move forward with the purchase? Nick and Amber would not move forward with the purchase.
Transcribed Image Text:Blossom Skydiving Co. is owned by Nick and Amber. Business has been booming, as baby boomers want to prove their moxie, and the younger generations want to post crazy pictures on social media. So Nick and Amber are planning to purchase a second plane. Here are the specs: Purchase price $200,000 New cash operating costs per year 6,700 Additional gross margin in year 1 14,500 The owners would use this plane for 10 years, at which point they would sell it and try to replace it with a newer model. They estimate the salvage value to be $73,000 at that time. The company's tax rate is 20%. (a) Your answer is partially correct. Determine the ARR for Blossom Skydiving Co. for the first year with this new plane in service. (Round answer to 2 decimal places, e.g. 15.25%. Enter negative answers using either a negative sign preceding the number, e.g.-15.25% or parentheses, e.g. (15.25)%.) ARR -2.22% If just one year of income is considered for this purchase, will Nick and Amber move forward with the purchase? Nick and Amber would not move forward with the purchase.
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