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

question 52

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.

What is the net present value (NPV) of the investment, rounded to the nearest whole dollar? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end.

• A) ($270,480).
• B) $63,936.
• C) $109,428.
• D) $154,920.
• E) None of these.

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Definitions:

Selective Filter

A cognitive process by which individuals screen and select information to focus on, disregarding other information.

Nonselective Nature

Describes a process or substance that does not discriminate between different targets or types, affecting or interacting with multiple systems or elements simultaneously.

Stimuli

External factors or conditions that elicit responses from organisms or biological systems.

Phonemic

Relating to phonemes, the smallest unit of sound in a language that can distinguish one word from another.