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

question 15

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 present value payback period, rounded to one-tenth of a year? (Note: PV factors for 10% are as follows: year 1 = 0.909; year 2 = 0.826; year 3 = 0.751; year 4 = 0.683; year 5 = 0.621; the PV annuity factor for 10%, 5 years = 3.791. Assume that annual after-tax cash inflows occur at year-end.)

• A) 2.5 years.
• B) 3.0 years.
• C) 3.3 years.
• D) 3.6 years.
• E) 4.0 years.

---

Definitions:

Antagonistically

In a manner that shows active opposition or hostility towards someone or something.

Patient Satisfaction

The degree to which patients are happy with their healthcare, including the quality of medical services, and their experiences with healthcare providers and facilities.

Authority

The prerogative to command, settle decisions, and enforce acquiescence.

Influencing

The capacity or power to affect others’ beliefs, attitudes, or actions by various means, including persuasion, social pressure, or leadership traits.