Linda’s Luxury Travel (LLT) is considering the purchase of two
Hummer limousines. Various information about the proposed
investment follows:
Initial investment (2 limos)  $  1,140,000  
Useful life  10  years  
Salvage value  $  130,000  
Annual net income generated  $  101,460  
LLT’s cost of capital  14  %  
Assume straight line depreciation method is used.
Required:
Help LLT evaluate this project by calculating each of the following:
1. Accounting rate of return.
2. Payback period.
3. Net present value.
4. Without making any calculations, determine whether the IRR is more or less than 14%.


Calculate net present value. (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. Cash Outflows and negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.)
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