Falcon Crest Aces (FCA), Inc., is considering the purchase of a
small plane to use in its wing-walking demonstrations and aerial
tour business. Various information about the proposed investment
follows:     

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Question: Falcon Crest Aces (FCA), Inc., is considering the purchase of a small plane to use in its wing-wa…
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Initial investment $ 310,000
Useful life $ 10 years
Salvage value 25,000
Annual net income generated $ 6,800
FCA’s cost of capital 7 %

Assume straight line depreciation method is used.

Required:
Help FCA 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. Net present value (NPV). (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. Negative amount should be indicated by a
minus sign. Round the final answer to nearest whole
dollar.)

4. Recalculate FCA’s NPV assuming the cost of
capital is 3% 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. Round
your final answer to the nearest whole dollar amount.)

5. Without doing any calculations,
what is the project’s IRR?

Less than 3%

Between 3% and 7%

Greater than 7%

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