help 416533

Wing Walker Aces (WWA), 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:

Initial investment $ 110,000
Useful life 10 years
Salvage value $ 10,000
Annual net income generated $ 5,400
WWA’s cost of capital 10 %

1. value:

10.00 points

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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 response.)

Accounting rate of return %

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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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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 check my workeBook Links (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 nearest whole dollar amount. Omit the “$” sign in your response.)

Net present value $

rev: 04 15 2011 check my workeBook Links (4)references

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