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Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) Useful life
Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) Useful life Salvage value Annual net income generated LLT's cost of capital $1,020,000 10 years $ 120,000 $ 88,740 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%. Table or Calculator Function: Cash Outflow (Beginning of the Year) Future Value Annuity of $1 Present Value Future Value of $1 Table or Calculator Function: Cash Inflow (for Next 10 Years) Present Value Annuity of $1 Present Value of $1 i = Table Factor Present Value Table or Calculator Function: Cash Inflow (for 10th Year) Table Factor Present Value Total Net Present Value Required 1 Required 2 Required 3 Required 4 Without making any calculations, determine whether the IRR is more or less than 14%. IRR
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