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

question 42

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 expected net income (after tax) in Year 3 if the proposed investment is undertaken? Round answer to nearest whole dollar.

• A) $28,000.
• B) $36,000.
• C) $42,000.
• D) $70,000.
• E) $72,000.

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