Linda’s Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) $600,000 Useful life 8years Salvage value $100,000 Annual net income generated 48,000 LLT’s cost of capital 12% Help LLT evaluate this project by calculating each of the following: 1. Accounting rate of return. 2. Payback period. 3. Net present value. (photo answer chart) 4. Without making any calculations, determine whether the IRR is more or less than 12%.
Linda’s Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows: Initial investment (2 limos) $600,000 Useful life 8years Salvage value $100,000 Annual net income generated 48,000 LLT’s cost of capital 12% Help LLT evaluate this project by calculating each of the following: 1. Accounting rate of return. 2. Payback period. 3. Net present value. (photo answer chart) 4. Without making any calculations, determine whether the IRR is more or less than 12%.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Linda’s Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows:
Initial investment (2 limos) $600,000
Useful life 8years
Salvage value $100,000
Annual net income generated 48,000
LLT’s cost of capital 12%
Help LLT evaluate this project by calculating each of the following:
1. Accounting
2. Payback period.
3.
4. Without making any calculations, determine whether the IRR is more or less than 12%.
Transcribed Image Text:Table or Calculator Function:
Present Value of $1
Cash Outflow (Beginning of the Year)
(600,000)
n =
i =
12 %
Present Value
$
(600,000)
Table or Calculator Function:
Present Value Annuity of $1
Cash Inflow (for Next 8 Years)
2$
110,500
n =
8
i =
12 %
Table Factor
110,500.0000
Present Value
Table or Calculator Function:
Cash Inflow (for 8th Year)
n =
i =
%
Table Factor
Present Value
Total Net Present Value
II
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