12.10

Pique Corporation wants to purchase a new machine for $290,000. Management predicts that the machine can produce sales of $198,000 each year for the next 5 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 10% on all investments. What is the approximate internal rate of return (IRR) of the investment? (NOTE: To answer this question, students must have access to Table 2 from Appendix C, 12) Assume that annual after-tax cash flows occur at year-end. Chapter Multiple Choice Less than 12% : somewhere between 12% and 14%