Pique Corporation wants to purchase a new machine for $300,000.Management predicts that the machine can 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 no residual value for all depreciable assets.Pique's tax rate is 40%.Management requires a minimum 10% rate of return on all investments.
What is the net after-tax cash inflow in Year 1 from the investment?

Question

Quizplus · Accepted Answer

To calculate the net after-tax cash inflow, we need to subtract the expenses, depreciation and taxes from the sales revenue.
Year 1 Sales Revenue = $200,000
Expenses = $80,000
Depreciation = $60,000 ($300,000/5)
Taxable Income = $60,000 ($200,000 - $80,000 - $60,000)
Taxes = $24,000 (40% of $60,000)
Net After-Tax Cash Inflow = $96,000 ($200,000 - $80,000 - $60,000 - $24,000)

Pique Corporation Wants to Purchase a New Machine for $300,000