Linda\'s luxury travel please answer 142 points E11-4 Calculating Accounting Rat

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Linda's luxury travel

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142 points E11-4 Calculating Accounting Rate of Return, Pay Linda's Luxury Travel (LLT) is considering the purchase of two Hu about the proposed investment tolows Initial investment (2 lirmos Useful life Salvage value Annual net income generated LLT's cost of capital 600,000 8 years $ 100,000 48,000 12% Assume straight line depreciation method is used. Required Help LLT evaluate this project by cakculating each of the following 1. Accounting rate of return Accounting Rate Or Return 2. Payback period (Round your answer to 2 decimal places.) Years Payback Penod

Explanation / Answer

Answer:

1. Accounting Rate of Return = Average Accounting Profit / Average Initial Investment = $ 48,000 / $ 600,000 = 8%

Note: It is assumed that Annual Net Income is after depreciation.

2. Pay Back Period;

Annual Cash Generated = $ 48,000 + Depreciation = $ 48,000 + ($ 600,000 - $ 100,000) / 8 = $ 110,500

Payback Period = $ 600,000 / $ 110,500 = 5.4298 or 5.43 years or 5 years, months and 5 days approx.

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