Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the propos follows: Initial investment (2 limos) Useful life $ 1,020,000 10 years $ 120,000 $ 88,740 14 Salvage value Annual net income generated LLT's cost of capital 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. (Euture Value of $1.Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Without making any calculations, determine whether the IRR is more or less than 14%.
Linda's Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the propos follows: Initial investment (2 limos) Useful life $ 1,020,000 10 years $ 120,000 $ 88,740 14 Salvage value Annual net income generated LLT's cost of capital 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. (Euture Value of $1.Present Value of $1. Euture Value Annuity of $1. Present Value Annuity of $1.) Note: Use appropriate factor(s) from the tables provided. Without making any calculations, determine whether the IRR is more or less than 14%.
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
Problem 1PS
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Question
Aa 28.
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
$1,020,000
10 years
$ 120,000
$88,740
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. (Euture Value of $1.Present Value of $1. Euture 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%.
Complete this question by entering your answers in the tabs below.
Required 11 Required 2 Required 3 Required 4
Calculate accounting rate of return.
Note: Round your answer to 1 decimal place.
Accounting Rate of Return
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