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Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) $ 1,260,000
Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows:
Initial investment (2 limos) | $ | 1,260,000 | |||||
Useful life | 10 | years | |||||
Salvage value | $ | 130,000 | |||||
Annual net income generated | $ | 114,660 | |||||
LLTs cost of capital | 14 | % | |||||
Assume straight line depreciation method is used.
Required:
Help LLT evaluate this project by calculating each of the following:
3. Net present value.
Table or Calculator Function | Present Value of $1 |
Cash Outflow (Beginning of the Year) | $(1,260,000) |
n = | 0 |
i = | 14% |
Present Value | $(1,260,000) |
Table or Calculator Function: | Present Value Annuity of $1 |
Cash Inflow (for Next 10 Years) | $227,660 |
n = | 10 |
i = | 14% |
Table Factor | |
Present Value | |
Table or Calculator Function: | Present Value of $1 |
Cash Inflow (for 10th Year) | $130,000 |
n = | 10 |
i = | 14% |
Table Factor | |
Present Value | |
Total Net Present Value |
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