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

question 374

Multiple Choice

Bau Long-Haul, Incorporated, 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.) :Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.

• A) 19%
• B) 18%
• C) 21%
• D) 16%

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Definitions:

Increasing Returns

An increase in a firm’s output by a larger percentage than the percentage increase in its inputs.

Diminishing Returns

A principle stating that after a certain point, additional investment or effort yields progressively smaller increases in output.

Marginal-cost Curve

The marginal-cost curve represents how the cost of producing one additional unit of a good changes as its production volume varies.

Marginal Product

The additional output that is generated by employing one more unit of a specific input, ceteris paribus.