Question

Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $281,656, 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 $76,000 per year. The internal rate of return on the investment in the tractor-trailer is closest to (Ignore income taxes.) ______________.

Answer 1

Answer:

19%

Explanation:

Calculation for what The internal rate of return on the investment in the tractor-trailer is closest to

First step is to calculate Factor of the internal rate of return (IRR)

using this formula

Factor of the internal rate of return(IRR)= Cost ÷ Additional Net annual cash inflow

Let plug in the formula

Factor of the internal rate of return(IRR)= $281,656 ÷ $76,000

Factor of the internal rate of return(IRR)= 3.706

Now let determine The internal rate of return on the investment

Based on the above calculation since Factor of the internal rate of return(IRR) for 7 years is 3.706 which means that the internal rate of return (IRR) will be 19%.

Or

The internal rate of return on the investment can also be calculated using below Excel formula

=RATE(7,$76,000,-$281,656)

IRR=19%

The internal rate of return on the investment in the tractor-trailer is closest to 19%