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

question 65

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 net after-tax cash inflow in Year 1 from the investment?

• A) $72,000.
• B) $96,000.
• C) $108,000.
• D) $112,000.
• E) $120,000.

---

Definitions:

IT Infrastructures

The comprehensive framework of technology components, such as hardware, software, networks, and data centers, that support an organization's IT operations.

Cloud Computing

The delivery of computing services—including servers, storage, databases, networking, software, analytics, and intelligence—over the Internet to offer faster innovation, flexible resources, and economies of scale.

Ubiquitous

The condition of being everywhere at the same time, commonly used to describe technologies that have become an integral part of daily life.

IaaS

Infrastructure as a Service, a form of cloud computing that provides virtualized computing resources over the internet.