Balloons By Sunset (BBS) is considering the purchase of two new hot air balloons so that it can expand its desert sunset tours. Variousinformation about the proposed investment follows: (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present ValueAnnuity of $1.)Note: Use appropriate factor(s) from the tables provided.Initial investment (for two hot air balloons)Useful lifeSalvage valueAnnual net income generatedBBS's cost of capitalAssume straight line depreciation method is used.Required:Help BBS evaluate this project by calculating each of the following:1. Accounting rate of return.Note: Round your answer to 2 decimal places.2. Payback period.$ 442,000$ 58,000$ 37,5701. Accounting rate of return2. Payback period3. Net present value4. Net present value assuming 13% cost of capitalNote: 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 tonearest whole dollar.8 years4. 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 tonearest whole dollar.%10%years

Payback Period = Initial Investment/ACFNet Present Value = Total Present Value - Initial…

Answered: Initial investment (for two hot air…

Initial investment (for two hot air balloons) Useful life Salvage value Annual net income generated BBS's cost of capital $ 442,000 $ 58,000 $ 37,570 8 years 10%

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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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

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.
$ 442,000
$ 58,000
$ 37,570
1. Accounting rate of return
2. Payback period
3. Net present value
4. Net present value assuming 13% cost of capital
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.
8 years
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.
%
10%
years

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