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: (Use appropriate factor(s) from the tables.) Initial investment (for two hot air balloons) $ 457,000 Useful life 8 years Salvage value $ 41,000 Annual net income generated 40,216 BBS’s cost of capital 7 %
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: (Use appropriate factor(s) from the tables.)
| Initial investment (for two hot air balloons) | $ | 457,000 | |
| Useful life | 8 | years | |
| Salvage value | $ | 41,000 | |
| Annual net income generated | 40,216 | ||
| BBS’s cost of capital | 7 | % | |
Assume straight line
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.
4. Recalculate the NPV assuming BBS's cost of capital is 10 percent. (Do not round intermediate calculations. Negative amount should be indicated by a minus sign. Round the final answer to nearest whole dollar.)
Step by step
Solved in 3 steps
