Galindo Long-Haul, Inc., is considering the purchase of a tractor-trailer that would cost $178,848, would have a useful life of 8 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 $36,000 per year. The internal rate of return on the investment in the tractor-trailer is closest to:

Answers

Answer 1

Answer:

the internal rate of return is 12%

Explanation:

The computation of the internal rate of return is as follows;

Year        Cash flows            

0             -$178,848

1                $36,000

2               $36,000

3               $36,000

4               $36,000

5               $36,000

6               $36,000

7               $36,000

8               $36,000

Now apply the IRR formula

= IRR()

After applying it, the internal rate of return is 12%

Galindo Long-Haul, Inc., Is Considering The Purchase Of A Tractor-trailer That Would Cost $178,848, Would

Related Questions

On January 1, 2010, Water Wonderland issues $20 million of 8% bonds, due in ten years, with interest payable semi-annually on June 30 and December 31 each year. 1. If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium

Answers

Answer:

the bonds will trade at a Premium

Explanation:

When the Yield to Maturity (YTM) is less than the Coupon Rate, the price of the Bond will be greater than the par value and we say that the Bond is trading at a Premium.

The Yield to Maturity of 7% is less than the Coupon rate 8% hence the bond will trade at a Premium.

Calculation of the Price of Bond

Alternatively we can calculate the price of the Bond a see for ourselves as follows :

FV = $20,000,000

PMT = ($20,000,000 × 8%) ÷ 2 = $8,00,000

P/YR = 2

YTM = 7 %

N = 10 × 2 = 20

PV = ?

Using a Financial calculator to input the values as above we can calculate the Price of Bond (PV) as $21,421,240.

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