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

Assume straight line depreciation method is used.

Required:

Help LLT evaluate this project by calculating each of the following:

4. Without making any calculations, determine whether the IRR is more or less than 14%.

Initial investment (2 limos) Useful life Salvage value Annual net income generated LLT's cost of capital $1,200,000 10 years $ 130,000 $ 108,000 14%