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

question 69

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 approximate internal rate of return (IRR) of the investment? (NOTE: To answer this question, students must have access to Table 2 from Appendix C, Chapter 12.) Assume that annual after-tax cash flows occur at year-end.

• A) Less than 12%.
• B) Somewhere between 12% and 14%.
• C) Somewhere between 15% and 20%.
• D) Somewhere between 20% and 25%.
• E) Over 25%.

---

Definitions:

Abolition Laws

Legislation aimed at ending the practice of slavery, with significant examples including the British Slavery Abolition Act of 1833 and the Emancipation Proclamation in the US.

Maryland

A region situated in the Mid-Atlantic area of the U.S., renowned for its important historic locations and being the origin of the national anthem.

Phillis Wheatley

The first African American female poet to be published, her works reflecting her life and times as a slave in the late 18th century.

African-Americans

An ethnic group in the United States with ancestors primarily from the African continent, historically subjected to slavery and discrimination but with a rich cultural heritage and significant contributions to American society.