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

question 78

Multiple Choice

Quip Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will 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 an assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 40%.

What is the payback period for the new machine (rounded to the nearest one-tenth of a year) ? Assume that the after-tax cash inflows occur evenly throughout the year.

• A) 2.7 years.
• B) 3.0 years.
• C) 3.3 years.
• D) 3.6 years.
• E) 4.2 years.

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Definitions:

Employment Choices

The various options and decisions that individuals face regarding their work life, including job selection, career paths, and work-life balance.

External Labour Market

The job market outside of an organization, including potential employees who could be recruited or hired.

Selection Strategies

Methods and processes used to identify, evaluate, and choose the most appropriate candidates for a specific role or purpose.

Organization's Overall Effectiveness

A measure of how well an organization achieves its goals and objectives through efficient use of resources, processes, and people management.