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

question 84

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 amount of net income (after taxes) in Year 2 of the investment? Round to the nearest whole number.

• A) $24,000.
• B) $36,000.
• C) $48,000.
• D) $60,000.
• E) $120,000.

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Definitions:

Emerge

To come into view, become apparent or known, especially after being hidden or unknown.

Newborn

An infant in its very first weeks of life, especially before they are one month old.

Distress

A state of emotional, mental, or physical strain or tension resulting from adverse or demanding circumstances.

Neglectful

Failing to provide adequate attention, care, or support, often resulting in harm or detriment to the well-being of others.