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 ........... 8 years
Salvage value ........... $100,000
Annual net income generated ... $ 48,000
LLT’s cost of capital ........ 12%

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. Based on your calculation of net present value, what would you estimate the project’s internal rate of return to be?



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  • CreatedFebruary 27, 2015
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