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

question 82

Multiple Choice

Quip 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 the straight-line depreciation and expects the machine to have a residual value of $50,000.Quip's tax rate is 40%.Management requires a minimum of 10% return on all investments.What is the payback period for the new machine (rounded to the nearest one-tenth of a year) ? Assume that the cash inflows occur evenly throughout the year.

• A)2.7 years.
• B)3.0 years.
• C)3.3 years.
• D)3.6 years.
• E)4.2 years.

---

Definitions:

Liable

Being legally responsible for something, especially in the context of debts or legal wrongs.

Estoppel

A legal principle that prevents a person from denying or asserting anything to the contrary of what has been established as the truth in legal proceedings.

Principal

Principal refers to a main party to a transaction, contract, or financial instrument, as opposed to an agent who acts on someone else's behalf.

Agent

A person or entity authorized to act on behalf of another (known as the principal) in legal or business matters.