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

question 86

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.

Rounded to the nearest whole percentage (e.g., 31.349% = 31%) , what is the annual accounting (book) rate of return (ARR) based on the initial investment?

• A) 12%.
• B) 20%.
• C) 32%.
• D) 36%.
• E) 40%.

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Definitions:

Social Enterprises

Social Enterprises are businesses that operate with the primary aim of addressing social problems, improving communities, or benefiting the environment, alongside generating revenue.

Management Perception

A concept that refers to how managers view and interpret the behaviors, outcomes, and processes within their organization.

Nonprofit Management

The administration and governance of nonprofit organizations, focusing on achieving their missions efficiently and effectively.

Business Management

The administration of an organization’s resources, operations, and strategies to achieve its objectives and maximize its efficiency and profitability.