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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) $ 660,000

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

Initial investment (2 limos)

$

660,000

Useful life

10

years

Salvage value

$

200,000

Annual net income generated

53,460

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. (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.)

Table or calculation function:

Cash Outflow (the beginning of the year):

n=

i= %

Present value:

Table or calculator function:

Cash inflow for next 10 years:

n=

i= %

Table factor:

Present value:

Table or Calculator function:

Cash inflow for 10th year

n=

i= %

Table factor:

Present Value:

Total net present value:

4. Without making any calculations, determine whether the IRR is more or less than 13%.

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