PA11-1 Calculating Accounting Rate of Return, Payback Period,Net Present Value, Estimating Internal Rate of Return [LO 11-1,11-2, 11-3, 11-4]

Balloons By Sunset (BBS) is considering the purchase of two newhot air balloons so that it can expand its desert sunset tours.Various information about the proposed investmentfollows:  

Initial investment (for two hot air balloons)	$	529,000
Useful life		9	years
Salvage value	$	43,000
Annual net income generated		48,139
BBS’s cost of capital		9	%

Assume straight line depreciation method is used.
  

Required:
Help BBS evaluate this project by calculating each of thefollowing:  

1. Accounting rate of return. (Round youranswer to 1 decimal place.)

        

2. Payback period. (Round your answer to 2decimal places.)

         

3. Net present value (NPV). (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present ValueAnnuity of $1.) (Use appropriate factor(s) from the tablesprovided. Do not round intermediate calculations. Negative amountshould be indicated by a minus sign. Round the final answer tonearest whole dollar.)

         

4. Recalculate the NPV assuming BBS's cost ofcapital is 12 percent. (Future Value of $1, Present Value of $1,Future Value Annuity of $1, Present Value Annuity of $1.)(Use appropriate factor(s) from the tables provided. Do notround intermediate calculations. Negative amount should beindicated by a minus sign. Round the final answer to nearest wholedollar.)