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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 $1,800,000. 10 years $ 140,000 $ 180,000 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 $1,800,000. 10 years $ 140,000 $ 180,000 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%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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 $1,800,000 $ 140,000 180,000 $ 15% 1. Accounting rate of return. 2. Payback period. 10 years Assume straight line depreciation method is used. Required: Help LLT evaluate this project by calculating each of the following: 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. Required 4 Required 1 Required 2 Required 3 Calculate accounting rate of return. (Round your answer to 1 decimal place.) Accounting Rate of Return < Required 1 Required 2 >
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 limos) Useful life. Salvage value Annual net income generated. LLT's cost of capital $1,800,000 $ 140,000 180,000 $ 15% 1. Accounting rate of return. 2. Payback period. 10 years Assume straight line depreciation method is used. Required: Help LLT evaluate this project by calculating each of the following: 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. Required 4 Required 1 Required 2 Required 3 Calculate accounting rate of return. (Round your answer to 1 decimal place.) Accounting Rate of Return < Required 1 Required 2 >
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