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 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 40%.What is the expected net income (after tax) in Year 3 if the proposed investment is undertaken? Round answer to nearest whole dollar.
What will be an ideal response?
$42,000
1. Pre-tax income = Sales ? depreciation expense ? cash expenses = $200,000 ? $50,000 ? $80,000 = $70,000
2. After-tax income (rounded to nearest whole dollar) = Pre-tax income × (1 ? t) = $70,000 × (1 ? 0.40) = $42,000
Business
You might also like to view...
When can lessee sublease or assign?
a. Only when the lease expressly authorize it in writing. b. When the lease does not prohibit it. c. Only when the lessor gives his written consent. d. Only with a court order.
Business
Zelda wants to move into a subdivision with her giraffe. Which of the following would best determine whether or not she could move into a home and keep her giraffe on the property?
a. the Constitution b. zoning ordinances c. deed restrictions d. both b and c
Business