Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows:

Initial investment (2 limos)	$	1,800,000
Useful life		10	years
Salvage value	$	140,000
Annual net income generated	$	180,000
LLTs cost of capital		15	%

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 15%.

Calculate accounting rate of return. (Round your answer to 1 decimal place.)

Accounting Rate of Return

%

Payback Period

years

Table or Calculator Function:
Cash Outflow (Beginning of the Year)
n =	0
i =	15	%
Present Value	$1,800,000
Table or Calculator Function:	Present Value Annuity of $1
Cash Inflow (for Next 10 Years)
n =	10
i =	15	%
Table Factor
Present Value
Table or Calculator Function:
Cash Inflow (for 10th Year)
n =
i =		%
Table Factor
Present Value
Total Net Present Value

Without making any calculations, determine whether the IRR is more or less than 15%.

IRR