Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would

Question

Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $283,213, would have a useful life of 7 years, and would have no salvage value. The tractor-trailer would be used in the company's hauling business, resulting in additional net cash inflows of $83,500 per year. The internal rate of return on the investment in the tractor-trailer is closest to (Ignore income taxes.): Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice 22% 16% 14% 19%

Explanation / Answer

Answer - 22%

Explanation:

Factor of the Internal rate of return = Investment required / Net annual cash inflow

= $283,213 / $83,500 = 3.3918

The factor of 3.3918 for 7 years represents an internal rate of return of 22%.

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