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melisa1 [442]
3 years ago
8

Bau Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $432,605, would have a useful life of 7 ye

ars, 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 $77,500 per year. The internal rate of return on the investment in the tractor-trailer is closest to (Ignore income taxes.):____.
a. 15%.
b. 54%.
c. 17%.
d. 12%.
Business
1 answer:
Alisiya [41]3 years ago
3 0

Answer:

6%

Explanation:

The computation of the internal rate of return is shown below:

We know that

Initial investment = Annual cash inflows × PVIFA factor (rate,nper)

$432,605 = $77,500 × PVIFA(rate,7)

PVIFA(rate,7) = $432,605 ÷ $77,500

PVIFA (rate,7) = 5.582

Now we use the PVIFA table

So here the rate that should be considered is 6%

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