Quip Corporation wants to purchase a new machine for $286,000. Management predicts that the machine will produce sales of $186,000 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 an assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 30%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the estimated net present value (NPV) of the proposed investment (rounded to the nearest hundred dollars)? Assume that after-tax cash inflows occur at year-end. a) $112,200. b) $70,200. c) $99,200. d) $49,000. e) $80,000.
Quip Corporation wants to purchase a new machine for $286,000. Management predicts that the machine will produce sales of $186,000 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 an assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 30%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the estimated net present value (NPV) of the proposed investment (rounded to the nearest hundred dollars)? Assume that after-tax cash inflows occur at year-end. a) $112,200. b) $70,200. c) $99,200. d) $49,000. e) $80,000.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Quip Corporation wants to purchase a new machine for $286,000. Management predicts that the machine will produce
sales of $186,000 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 an
assumed residual (salvage) value of $50,000. Quip's combined income tax rate, t, is 30%. Management requires a
minimum after-tax rate of return of 10% on all investments. What is the estimated net present value (NPV) of the proposed
investment (rounded to the nearest hundred dollars)? Assume that after-tax cash inflows occur at year-end.
a) $112,200.
b) $70,200.
c) $99,200.
d) $49,000.
e) $80,000.
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