Lindaâs Luxury Travel (LLT) is considering the purchase of twoHummer limousines. Various information about the proposedinvestment follows:
Initial investment (2limos) $ 1,140,000 Useful life 10 years Salvage value $ 130,000 Annual net income generated 101,460 LLTâs cost of capital 16 %
Assume straight line depreciation method isused.
Required:
Help LLT evaluate this project by calculating each of thefollowing:
1. Accounting rate of return. (Round yourpercentage answer to 1 decimal place.)
2. Payback period. (Round your answer to 2decimal places.)
3. Net present value. (Future Value of $1, PresentValue 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 negativeamounts should be indicated by a minus sign. Round your "PresentValues" to the nearest whole dollar amount.)
4. Without making any calculations, determinewhether the IRR is more or less than 16%.
Greater than 16% Less than 16%
Lindaâs Luxury Travel (LLT) is considering the purchase of twoHummer limousines. Various information about the proposedinvestment follows:
| Initial investment (2limos) | $ | 1,140,000 | |||||
| Useful life | 10 | years | |||||
| Salvage value | $ | 130,000 | |||||
| Annual net income generated | 101,460 | ||||||
| LLTâs cost of capital | 16 | % | |||||
Assume straight line depreciation method isused.
Required:
Help LLT evaluate this project by calculating each of thefollowing:
1. Accounting rate of return. (Round yourpercentage answer to 1 decimal place.)
2. Payback period. (Round your answer to 2decimal places.)
3. Net present value. (Future Value of $1, PresentValue 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 negativeamounts should be indicated by a minus sign. Round your "PresentValues" to the nearest whole dollar amount.)
4. Without making any calculations, determinewhether the IRR is more or less than 16%.
| Greater than 16% | |
| Less than 16% |
