Question
Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) $ 1,500,000
Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows:
Initial investment (2 limos) | $ | 1,500,000 | |||||
Useful life | 10 | years | |||||
Salvage value | $ | 140,000 | |||||
Annual net income generated | 142,500 | ||||||
LLTs cost of capital | 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. (Round your percentage answer to 1 decimal place.)
2. Payback period. (Round your answer to 2 decimal places.)
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. Do not round intermediate calculations. Cash Outflows and negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.)
4. Without making any calculations, determine whether the IRR is more or less than 14%.
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. Do not round intermediate calculations. Cash Outflows minus sign. Round your "Present Values" to the nearest whole dollar amount.) Table or Calculator Function: Cash Outfloww ( Beginning of th e Year) Present Value Table or Calculator Function: Cash Inflow (for Next 10 Years) Table Factor Present Value Table or Calculator Function Cash Inflow (for 10th Year) n- Table Factor Present Value Total Net Present ValueStep by Step Solution
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