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.
-Net present value is calculated using the
A)internal rate of return.
B)required rate of return.
C)rate of return required by the investment bankers.
D)after tax cost of debt.
E)coupon interest rate on the firm's debt.

Question

Quizplus · Accepted Answer

Net present value (NPV) is calculated using the required rate of return, which is equal to the cost of capital for the company. This is the rate of return that investors or shareholders expect to receive on their investment. In this case, the required rate of return is 18%. NPV is used to evaluate whether a project is worth investing in, by comparing the present value of future cash inflows to the initial investment.

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