Linda’s Luxury Travel (LLT) is considering the purchase of two Hummer limousines

Question

Linda’s Luxury Travel (LLT) is considering the purchase of two Hummer limousines. Various information about the proposed investment follows:   

The cash outflow Present value is $660,000.

?What is the present value of the cash inflow for the next 10 years?

?What is the present value of the cash inflow on the tenth year?

?What is the total net present value?

Initial investment (2 limos) $ 660,000 Useful life 10 years Salvage value $ 200,000 Annual net income generated 53,460 LLT’s cost of capital 13 %

The cash outflow Present value is $660,000.

?What is the present value of the cash inflow for the next 10 years?

?What is the present value of the cash inflow on the tenth year?

?What is the total net present value?

Explanation / Answer

Answer:- The net present value of project is -$61390.

Explanation:-

Net present value of project = Present value of cash inflows – Total outflows

     ={($99460*5.4262)+($200000*.2946) - $660000}

     =($539690+$58920) - $660000

     = $598610-$660000

     = -$61390

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