Question
Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) $ 960,000
Lindas Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows:
Initial investment (2 limos) | $ 960,000 |
---|---|
Useful life | 10 years |
Salvage value | $ 120,000 |
Annual net income generated | $ 82,560 |
LLTs cost of capital | 13 |
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. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.)
Note: Use appropriate factor(s) from the tables provided.
4. Without making any calculations, determine whether the IRR is more or less than 13%.
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