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E11-4 Calculating Accounting Rate of Return, Payback Period, Net Present Value, Estimating Internal Rate of Return [LO 11-1, 11-2, 11-3, 11-4]

Lindas 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
LLTs cost of capital		12	%

Assume straight line depreciation method is used. Required: Help LLT evaluate this project by calculating each of the following: 1. Accounting rate of return. 2. Payback period. (Round your answer to 2 decimal places.) 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. 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: Present Value Annuity 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) $110,500 n = i = % Table Factor Present Value Table or Calculator Function: Present Value Annuity of $1 Cash Inflow (for 8th Year) n = i = % Table Factor Present Value Total Net Present Value

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