Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. accounting
  3. hawk airlines is planning a project that is expect

Hawk Airlines is planning a project that is expected to last for six years and...

70.2K

Verified Solution

Question

Accounting

Hawk Airlines is planning a project that is expected to last for six years and generate annual net cash inflows of $75,000. The project will require the purchase of a $280,000 machine, which is expected to have a salvage value of $10,000 at the end of the six-year period. The machine will require a $50,000 overhaul at the end of the fourth year. The company presently has a 12% minimum desired rate of return.

Based on this information, an accountant prepared the following analysis:

Annual net cash flow

$75,000

Annual depreciation

$45,000

Annual average cost of overhaul

8,333

(53,333)

Average annual income

$21,667

Return on Investment = $21,667 $280,000 = 7.74%

The accountant recommends that the project be rejected because it does not meet the company's minimum desired rate of return. Ignore income taxes. Required: A. What criticism(s) would you make of the accountant's evaluation? B. Use the net-present-value method and determine whether the project should be accepted. C. Based on your answer in requirement "B," is the internal rate of return greater or less than 12%? Please explain your rationale.

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students