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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) $ 1,560,000

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

Initial investment (2 limos) $ 1,560,000
Useful life 10 years
Salvage value $ 140,000
Annual net income generated $ 149,760
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.
  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 14%.

Please do not use previous post answers as they are wrong.

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