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Quip Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses 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 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the proposed investment's estimated net present value (NPV) (rounded to the nearest hundred)? (The PV annuity factor for 10%, 5 years, is 3.791, and for 4 years, it is 3.17. The present value of $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end. A. $48,800 B. $99,000 C. $112,000 D. $79,800

Quip Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses 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 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the proposed investment's estimated net present value (NPV) (rounded to the nearest hundred)? (The PV annuity factor for 10%, 5 years, is 3.791, and for 4 years, it is 3.17. The present value of $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end. A. $48,800 B. $99,000 C. $112,000 D. $79,800

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Quip Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses 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 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the proposed investment's estimated net present value (NPV) (rounded to the nearest hundred)? (The PV annuity factor for 10%, 5 years, is 3.791, and for 4 years, it is 3.17. The present value of $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end. A. $48,800 B. $99,000 C. $112,000 D. $79,800
Transcribed Image Text:Quip Corporation wants to purchase a new machine for $300,000. Management predicts that the machine will produce sales of $200,000 each year for the next 5 years. Expenses 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 40%. Management requires a minimum after-tax rate of return of 10% on all investments. What is the proposed investment's estimated net present value (NPV) (rounded to the nearest hundred)? (The PV annuity factor for 10%, 5 years, is 3.791, and for 4 years, it is 3.17. The present value of $1 factor for 10%, 5 years, is 0.621.) Assume that after-tax cash inflows occur at year-end. A. $48,800 B. $99,000 C. $112,000 D. $79,800
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