Use the information below to answer the following question(s).Neptune Ltd.wants to expand its operations by manufacturing a new product line.New equipment will cost $225,000.Incremental sales are estimated at $150,000 per year for 6 years.Variable costs of producing the new product line are 52% of sales and incremental annual fixed costs are $25,000.The equipment can be salvaged after 6 years for 16% of its original cost.The company's required rate of return for new projects is 18%.Ignore income taxes.
-What is the net present value of the Neptune Ltd.investment?
A)($26,291)
B)($47,277)
C)$225,536
D)($60,613)
E)$93,000

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by finding the present value of cash inflows and subtracting the initial investment. The cash inflows are the net sales after variable and fixed costs, plus the salvage value at the end. Discount these cash flows at the required rate of return (18%) and subtract the initial equipment cost.

Use the Information Below to Answer the Following Question(s)