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

question 11

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

• A) 2.5 years.
• B) 2.7 years.
• C) 3.1 years.
• D) 3.6 years.
• E) 4.2 years.

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Definitions:

Person-Situation Debate

A controversy in psychology concerning whether an individual's behavior is more influenced by personality traits or by situational factors.

Funder's Analysis

An approach or method in psychological study that emphasizes the importance of accurate personality judgment and the conditions under which it can be achieved.

Predict

To declare or indicate in advance based on observation, experience, or scientific reasoning, especially about future occurrences or trends.

Perceptions

The process of interpreting sensory information to form an understanding of the environment around us, influenced by experience, beliefs, and behavior.