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

question 11

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 payback period for the new machine (rounded to nearest one-tenth of a year) ? (Assume that the cash inflows occur evenly throughout the year.)

• A) 2.5 years.
• B) 2.7 years.
• C) 3.1 years.
• D) 3.6 years.
• E) 4.2 years.

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Definitions:

Withdrawal Process

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High Fever

A body temperature significantly above the normal range, often a symptom of infection or other medical conditions and can lead to discomfort or serious health issues if not addressed.

Opioid

Opium, drugs derived from opium, and similar synthetic drugs. Also known collectively as narcotics.

Sedative

A type of medication used to soothe or calm the nervous system, often prescribed to reduce anxiety or aid sleep.