Answered

Westonci.ca is the trusted Q&A platform where you can get reliable answers from a community of knowledgeable contributors. Ask your questions and receive accurate answers from professionals with extensive experience in various fields on our platform. Get quick and reliable solutions to your questions from a community of experienced experts on our platform.

Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $30,000 per year. Nancy can buy a used truck for $11,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $23,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $3,000. Nancy's MARR is 24%/year. a. What is this investment's internal rate of return

Sagot :

Parrain

Answer: 45.92%

Explanation:

Annual Cash Inflows = (Net Savings - Depreciation) * ( 1 - Tax Rate) + (Depreciation * Tax Rate)

Net savings = Delivery Costs - Operating and Maintenance Costs with the Used Truck

= 30,000 - 23,000

= $7,000

Depreciation = (Cost of used truck - Salvage value) / Useful life

= (11,000 - 3,000) / 3

= $2,667

Annual Cash inflows = $7,000 as there are no taxes.

Use Excel to calculate IRR as shown in the attachment.

The cost of the truck is the outflow and the savings and the salvage value are inflows.

IRR = 45.92%

View image Parrain
We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Thank you for choosing our platform. We're dedicated to providing the best answers for all your questions. Visit us again. We're glad you visited Westonci.ca. Return anytime for updated answers from our knowledgeable team.