Gamma Electronics Gamma Electronics Is Considering the Purchase of Testing Equipment That

question 5

Multiple Choice

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.
-Refer to Gamma Electronics.If the firm has a 15% cost of capital,what's the discount payback period of the investment?

• A) 1.5 years
• B) 2.0 years
• C) 2.4 years
• D) 2.6 years

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Definitions:

Net Operating Income

Income from a company's core business operations, excluding deductions of interest and taxes.

Flexible Budget

A budget that adjusts or flexes with changes in volume or activity levels of the business, allowing for more accurate budgeting and performance evaluation.

Direct Materials

Raw materials that are directly traced and integral to the manufacturing of a finished product.

Spending Variance

The difference between the budgeted or standard cost of something and the actual amount spent, often analyzed in budgeting and cost management.