Gamma Electronics Is Considering the Purchase of Testing Equipment That

question 1

Multiple Choice

Gamma Electronics is considering the purchase of testing equipment that will cost $500,000.The equipment has a 5-year lifetime with no salvage value.Assume the new machine will generate after-tax savings of $100,000 per year for the five years. If the firm has a 15% cost of capital,what is the equivalent annual cost of the equipment?

• A) $32,924
• B) $42,746
• C) $49,158
• D) $37,863