Bau Long-Haul, Incorporated, is considering the purchase of a tractor-trailer that would cost $363,510, 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 $90,000 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 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

Question

Quizplus · Accepted Answer

The internal rate of return is 16%. The net present value of the investment is $0, which means that the present value of the cash inflows is equal to the present value of the cash outflows. The internal rate of return is the discount rate that makes the net present value of the investment equal to $0.

Bau Long-Haul, Incorporated, Is Considering the Purchase of a Tractor-Trailer