Pique Corporation wants to purchase a new machine for $316,000. Management predicts that the machine can produce sales of $205,000 each year for the next 4 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $88,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 30%. Management requires a minimum after-tax rate of return of 11% on all investments.
What is the amount of net income (after taxes) in Year 2 of the investment? Round to the nearest whole number.
$26,600
1. Pre-tax income = Sales ? depreciation expense ? cash expenses = $205,000 ? $79,000 ? $88,000 = $38,000
2. After-tax income (rounded to the nearest whole number) = Pre-tax income × (1 ? t) = $38,000 × (1 ? 0.30) = $26,600
You might also like to view...
The person who will receive the benefit of an annuity and whose life the payout is based upon when the contract is purchased is the:
A. policyowner B. annuitant C. beneficiary D. insured
E-procurement benefits include each of the following except
A) reducing the number of suppliers. B) ensuring delivery on time, every time. C) ease of internal and external integration. D) improving information flow and management.