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

question 83

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 annual book (accounting) rate of return based on the initial investment?

• A)12%.
• B)14%.
• C)17%.
• D)20%.
• E)24%.

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