Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) $ 600,000 Useful life 8 years Salvage value $ 100,000 Annual net income generated 48,000 LLTs cost of capital 12 % Assume straight line depreciation method is used. Required: Help LLT evaluate this project by calculating each of the following:

Accounting Rate of Return _______________%

Payback period__________years

3.

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.)

Table or Calculator Function:
Cash Outflow (Beginning of the Year)
n =
i =		%
Present Value
Table or Calculator Function:
Cash Inflow (for Next 8 Years)
n =
i =		%
Table Factor
Present Value
Cash Inflow (for 8th Year)
n =
i =		%
Table Factor
Present Value
Total Net Present Value

4.

Without making any calculations, determine whether the IRR is more or less than 12%.

	Less than 12%
	Greater than 12%