Pique Corporation wants to purchase a new machine for $281,000. 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 $90,000 per year. The firm uses straight-line depreciation with no residual value for all depreciable assets. Pique's combined income tax rate is 20%. Management requires a minimum after-tax rate of return of 10% on all investments.

What is the net present value (NPV) of the investment, rounded to the nearest whole dollar? (The PV annuity factor for 5 years, 10% is 3.791.) Assume that the cash inflows occur at year-end.

$155,875

1. SL depreciation expense per year = ($281,000 ? $0)/5 years = $56,200

2. Pre-tax income per year = Sales ? depreciation ? cash expenses = $220,000 ? $56,200 ? $90,000 = $73,800

3. Tax expense per year = $73,800 × 0.20 = $14,760

4. After-tax income = Pre-tax income ? income taxes = $73,800 ? $14,760 = $59,040

5. Annual after-tax cash flow = after-tax income + depreciation expense = $59,040 + $56,200 = $115,240

6. PV of future after-tax cash inflows = $115,240 × 3.791 = $436,875

7. Original investment outlay = $281,000

8. NPV = PV of future after-cash inflows - Original investment outlay = $436,875 ? $281,000 = $155,875