Quip Corporation wants to purchase a new machine for $340,000. Management predic

Question

Quip Corporation wants to purchase a new machine for $340,000. Management predicts that the machine will produce sales of $230,000 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 the straight-line depreciation and expects the machine to have a residual value of $57,000. Quip's combined income tax rate, t, is 50.00%. The required rate of return is 10.00% What is the IRR? Quip Corporation wants to purchase a new machine for $340,000. Management predicts that the machine will produce sales of $230,000 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 the straight-line depreciation and expects the machine to have a residual value of $57,000. Quip's combined income tax rate, t, is 50.00%. The required rate of return is 10.00% What is the IRR?

Explanation / Answer

Answer:

Particulars Amount ($) Sale 230000 Less: Expenses 90000 Less: Dep 56600 EBT 83400 Less: tax 41700 EAT 41700 Add: Dep 56600 Operating cash flow 98300

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