Determine the IRR on the school bus contract in Problem 1 of Exercise 16.2. At which of the three costs of capital would the contract be financially acceptable?
In Problem 1
St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the contract, St. Lawrence would have to buy three buses at a total cost of $333,000. At the end of the contract, the resale value of the buses is estimated to be $80,000.