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 $281,664, 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 $84,000 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. A. 23% B. 16% C. 19% D. 14%

Explanation / Answer

Pv factor for internal rate of return = 281664/84000= 3.353 Internal rate of return = 23%

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