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

question 114

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 present value payback period,rounded to one-tenth of a year? (Note: PV factors for 10% are as follows: year 1 = 0.909;year 2 = 0.826;year 3 = 0.751;year 4 = 0.683;year 5 = 0.621;the PV annuity factor for 10%,5 years = 3.791. )

• A)2.5 years.
• B)3.0 years.
• C)3.6 years.
• D)4.1 years.
• E)4.8 years.

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