Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows Initial investment (2 limos) Useful life Salvage value Annual net income generated LLT's cost of capital $1,080,000 10 years $ 120,000 %24 95,040 15% 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. 4. Without making any calculations, determine whether the IRR is more or less than 15%.
Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows Initial investment (2 limos) Useful life Salvage value Annual net income generated LLT's cost of capital $1,080,000 10 years $ 120,000 %24 95,040 15% 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. 4. Without making any calculations, determine whether the IRR is more or less than 15%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Complete all four of the required questions!
Transcribed Image Text:Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment
follows
Initial investment (2 1imos)
$1,080,000
Useful life
Salvage value
Annual net income generated
LLT's cost of capital
10 years
$ 120,000
95,040
15%
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.
4. Without making any calculations, determine whether the IRR is more or less than 15%.
Complete this question by entering your answers in the tabs below.
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Accounting Rate of Return
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