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Veys Limos, Inc., is considering the purchase of a limousine that would cost $155,776, would have a useful life of 7 years, and would have no salvage value. The limousine would bring in cash inflows of $32,000 per year in excess of its cash operating costs. Determine the internal rate of return on the investment in the new limousine.

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Answer:

The IRR = 4.868, The present value of annuity table for 7 years = 10%

Explanation:

Solution:

Recall that:

Veys Limos Incorporation is considering buying a limousine cost of =$155,776.

The useful life = 7 years

The cash inflow of the limousine = $32,000 per year

Now,

We determine the internal rate of return on the investment in the new limousine.

Thus,

The Internal rate of return is calculated as follows:

$155776/$32,000

=4.868

So,

we check for the present value of annuity table for 7 years

Which is,

= 10%

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