Question

Bau Long-Haul, Incorporated, is considering the purchase of a tractor-trailer that would cost $459,153, 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 $76,500 per year. The internal rate of return on the investment in the tractor-trailer is closest to (Ignore income taxes.):

Answer 1

Answer:

the internal rate of return is 4%

Explanation:

The computation of the internal rate of return is shown below

Internal rate of return  factor

= Investment required ÷ Net annual cash inflow

= $459,153 ÷ $76,500

= 6.002

The factor of 6.002 for 7 years shows an internal rate of return of 4% in a present value of annuity factor table of $1 in arrears

hence, the internal rate of return is 4%

We simply applied the above formula so that the correct factor could come

And, the same is to be considered