NARRBEGIN: Gamma Electronics Gamma Electronics

question 46

Multiple Choice

NARRBEGIN: Gamma Electronics
Gamma Electronics
Gamma Electronics is considering the purchase of testing equipment that will cost $500,000 to replace old equipment.Assume the new machine will generate after-tax savings of $250,000 per year over the next four years.
-If Gamma Electronics has a 15% cost of capital,what's the profitability index of the investment?

• A) 1.4
• B) 0.4
• C) 2.0
• D) 1.0

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Definitions:

Donee Beneficiary

A third party that benefits from a contract between two other parties, to whom the promisor's performance is a gift.

Promisee

The individual or entity to whom a promise is made and who stands to benefit from the fulfillment of that promise.

Creditor Beneficiary

An individual or entity that benefits from a contract made between two other parties because of a debt owed to them.

Breach of Contract

The failure to perform any term of a contract, written or oral, without a legitimate legal excuse.