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)	$	1,680,000
Useful life		10	years
Salvage value	$	140,000
Annual net income generated		164,640
LLT’s cost of capital		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. (Round your percentage answer to 1 decimal place.)

	Accounting Rate of Return %

2. Payback period. (Round your answer to 2 decimal places.)

	Payback Period Years

3. Net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Cash Outflows and negative amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.)

	Table or Calculator Function: Cash Outflow (Beginning of the Year) $1,680,000 n = 0 i = 15 % Present Value $1,680,000 Table or Calculator Function: Present Value Annuity of $1 Cash Inflow (for Next 10 Years) n = i = % Table Factor Present Value Table or Calculator Function: Cash Inflow (for 10th Year) n = i = % Table Factor Present Value Total Net Present Value

Answer 1