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

question 46

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 approximate internal rate of return (IRR) of the proposed investment? (Note: To answer this question,students must have access to Table 2 from Appendix C,Chapter 12. )

• A)Less than 12%.
• B)Somewhere between 12% and 14%.
• C)Somewhere between 14% and 15%.
• D)Somewhere between 15% and 20%.
• E)Over 20%.

---

Definitions:

Journal Entries

The recordings of transactions in the accounting journals, which form the basis for all financial reporting and analysis.

Deferred Revenues

Deferred revenues represent income received by a company for goods or services yet to be delivered or performed, also known as unearned revenue.

Financial Position

This term describes the status of a person's or entity's financial health, determined by their assets, liabilities, and equity.

Assets

Assets held by a business that possess monetary worth and can be transformed into liquid cash.