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.): Use Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided.

Question

Quizplus · Accepted Answer

Factor of the internal rate of return = Investment required ÷ Annual net cash inflow
= $281,656 ÷ $76,000 = 3.706
This factor is the present value of an annuity for 7 periods at 19% per period.