In: Accounting
Iron Ore Company Ltd. (IOC) is considering buying a new truck so that it can make its own deliveries. The truck will cost $150,000, has a life expectancy of five years, and is expected to save the company $45,000 before tax each year in delivery expenses. IOC’s cost of capital is 9%, and its tax rate is 24%. Ignoring CCA and salvage, what is the payback period (PBP) and internal rate of return (IRR) for the proposed purchase?