Calculating Accounting Rate of Return, Payback Period, Net Present Value
Lenny’s Limousine Service (LLS) 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 |
LLS’s cost of capital | 12% |
Required:
Help LLS 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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