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

question 80

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 net after-tax cash inflow in Year 1 from the proposed investment, rounded to the nearest whole dollar?

• A) $72,000.
• B) $92,000.
• C) $96,000.
• D) $102,000.
• E) $120,000.

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Definitions:

Note Payable

A written promise to pay a specific sum of money to a bearer or a specified person at a future date or on demand.

Cash Dividends

Profits paid out to shareholders by a corporation based on the number of shares they own.

Statement of Cash Flows

A report detailing how modifications in balance sheet accounts and earnings influence cash and cash equivalents.

Common Stock

A type of securities representing ownership in a corporation, whereby holders have voting rights and may receive dividends.