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Wing Walker Aces (WWA), Inc., is considering the purchase of a small plane to use in its wing walking demonstrations and aerial tour |
| Initial investment | $ | 110,000 | |
| Useful life | 10 | years | |
| Salvage value | $ | 10,000 | |
| Annual net income generated | $ | 5,400 | |
| WWA’s cost of capital | 10 | % | |
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1.
value:
10.00 points
| Required: |
| Help WWA evaluate this project by calculating each of the following: |
| (a) |
Accounting rate of return. (Round your answer to 2 decimal places. Omit the “%” sign in your |
| Accounting rate of return | % |
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(4)references
| Worksheet | Learning Objective: 08-01 Calculate the accounting rate of return and describe its major weaknesses. |
Learning Objective: 08-03 Calculate net present value and describe why it is superior to the other capital budgeting techniques. |
| Difficulty: Hard | Learning Objective: 08-02 Calculate the payback period and describe its major weaknesses. | Learning Objective: 08-04 Predict the internal rate of return and describe its relationship to net present value. |
2.
value:
10.00 points
| (b) | Payback period. (Round your answer to 2 decimal places.) |
| Payback period | years |
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(4)references
3.
value:
10.00 points
| (c) |
Net present value (NPV). (Use Table 2 &Table 4.) (Negative amount should be indicated by a minus sign. Round your intermediate calculations to 4 decimal places and final answer to the nearest whole dollar amount. Omit the “$” sign in your response.) |
| Net present value | $ |
rev: 04-11-2011
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(4)references
4.
value:
10.00 points
| (d) |
Recalculate WWA’s NPV assuming the cost of capital is 6 percent. (Use Table 2 &Table 4.) (Round your intermediate calculations to 4 decimal places and final answer to the |
| Net present value | $ |
rev: 04-15-2011
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(4)references
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