Question

only need help with #3 thank you in advance!

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 $1,620,000 10 years $ 140,000 157,140 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 9.71% 2. Payback period. (Round your answer to 2 decimal places.) Payback Period 5.31 Years

Answer 1

А в table or calculator function cash outflow (beginning of the year) present value of $1 $ 1,620,000 n= 15% $ 1,620,000 present value table or calculator function cash inflow (for next 10 years) n= present value annuity of $1 $ 305,140 10 15% 5.0188 $ 1,531,437 table factor present value table or calculator function cash inflow (for 10th year) n= present value annuity of $1 $ 140,000 10 15% 0.2472 $ 34,608 table factor present value total net present value $ 53,955 note - I have used the table factors rounded to 4 decimals

for formulas and calculations, refer to the image below -

X for 3 3 table or calculator function present value of $1 cash outflow (beginning of the year) -1620000 n= 0.15 present value =D3 table or calculator function cash inflow (for next 10 years) n= present value annuity of $1 =157140+ (1620000-140000)/10) 10 table factor present value 0.15 =ROUND(-PV(D11, D10,1),4) =ROUND(D9*D12,0) table or calculator function cash inflow (for 10th year) n= present value annuity of $1 140000 10 0.15 =ROUND(-PV(D18,D17,0,1),4) =ROUND(D16*D19,0) table factor present value total net present value =D6+D13+D20 note - I have used the table factors rounded to 4 decimals

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