Pique Corporation Wants to Purchase a New Machine for $300,000

question 86

Multiple Choice

Pique Corporation wants to purchase a new machine for $300,000. Management predicts that the machine can produce sales of $200,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $80,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 40%. Management requires a minimum after-tax rate of return of 10% on all investments.

Rounded to the nearest whole percentage (e.g., 31.349% = 31%) , what is the annual accounting (book) rate of return (ARR) based on the initial investment?

• A) 12%.
• B) 20%.
• C) 32%.
• D) 36%.
• E) 40%.

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Definitions:

Pleasure Principle

A concept in psychoanalytic theory describing the human drive toward seeking immediate gratification of needs, desires, and urges.

Susceptibility Modification

Changes in an individual's sensitivity or vulnerability to environmental or social influences.

Neodissociation Theory

A psychological theory that explains hypnosis and other altered states of consciousness through the dissociation of the executive control function of the mind into separate streams of awareness.

Neodissociation Theory

A theory proposed by Ernest Hilgard that explains hypnosis as a state of dual consciousness or dissociation within an individual.