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

question 100

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 estimated accounting (book) rate of return (ARR) for the proposed investment, based on average investment? (Round answer to nearest whole number/percentage.)

• A) 12%.
• B) 14%.
• C) 17%.
• D) 24%.
• E) 34%.

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Definitions:

Exoskeleton

An external skeleton, such as the shell of mollusks or outer covering of arthropods; provides protection and sites of attachment for muscles. Compare with endoskeleton.

Desiccation

The process of drying out or removing moisture.

Locomotion

The ability to move from one place to another, utilized by organisms to find food, escape predators, or seek other necessities.

Phylum Cnidaria

A phylum of mostly marine animals that includes corals, jellyfish, and sea anemones, characterized by their distinctive stinging cells called cnidocytes.