Pique Corporation wants to purchase a new machine for $310,000. Management predi
ID: 2564815 • Letter: P
Question
Pique Corporation wants to purchase a new machine for $310,000. Management predicts that the machine can produce sales of $220,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $85,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 40.00%. Management requires a minimum after-tax rate of return of 10.00% on all investments. What is the net after-tax cash inflow in Year 1 from the investment? $105,800 $110,800 $107,300 $115,800 $100,800
Explanation / Answer
Cash Inflow for 1st Year $105,800 Working As below Sales for 1 Year 220,000 Less: Expenses For the year 85,000 Depriciation (310000/5) 62000 Profit before Tax 73,000 Less: Income tax @ 40% 29,200 Profit after tax 43,800 Add: Depriciation 62,000 Cash Inflow for 1st Year 105,800