Quip Corporation wants to purchase a new machine for $288,000. Management predicts that the machine will produce sales of $184,000 each year for the next 5 years. Expenses are expected to include direct materials, direct labor, and factory overhead (excluding depreciation) totaling $79,000 per year. The firm uses straight-line depreciation with an assumed residual (salvage) value of $50,000. Quip's combined income tax rate,t, is 40%.

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 proposed investment? (Note: To answer this question, students must have access toTable 2 from Appendix C, Chapter 12.) Assume that all cash flows occur at year-end.

Multiple Choice

• Less than 10%.
• Somewhere between 10% and 12%.
• Somewhere between 12% and 13%.
• Somewhere between 13% and 14%.
• Over 14%.