Whats the net present value of the investment

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Reference no: EM13929485

Gamma Electronics is considering the purchase of testing equipment that will require an initial outlay (cost) of $500,000 to replace old equipment. The purchase of this new equipment will result in a positive after-tax cash benefit/in-flow of $200,000 at the end of each year, for the next four years. If Gamma Electronics has a 10% cost of capital, what's the Net Present Value (NPV) of the investment?

a) $213,745

b) $259,250

c) $159,250

d) $134,000

Referring to the Gamma Electronics cash flow scenario discussed above, if Gamma Electronics has a 12% cost of capital, what's the profitability index of the investment?

a) 1.22

b) 1.43

c) 1.52

d) 1.00

Reference no: EM13929485

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