In January, Wilson Company Purchased a New Machine for $80,000

question 81

Multiple Choice

In January, Wilson Company purchased a new machine for $80,000 that has a useful life of 10 years and a terminal value of $5,000. Annual cash operating savings from the machine are $20,000. The income tax rate is 40%. What is the after-tax payback period?

• A) 4.00 years
• B) 5.26 years
• C) 4.85 years
• D) 6.67 years

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Definitions:

PVGO

Present Value of Growth Opportunities; the portion of a company's stock price that is attributed to its expected earnings growth.

Free Cash Flow

The amount of cash generated by a company after accounting for capital expenditures, necessary to maintain or expand the asset base.

WACC

The weighted average cost of capital, a measure of a firm's cost of capital in which each category of capital is proportionately weighted.

Firm Value

The total value of a company, measured by its market capitalization plus debts, minority interest, and preferred shares, minus total cash and cash equivalents.