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?

Question

Quizplus · Accepted Answer

(250,000/1.15 + 250,000/1.15² + 250,000/1.15³+ 250,000/1.15⁴)/500,000 = 713,745/500,000 = 1.4

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