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.
-Weston Ltd. is considering investing in a new piece of equipment for its factory. It estimates that the machine will generate an additional $120,000 per year in revenues. The contribution margin on these incremental revenues is estimated at 40%. Incremental annual operating costs are estimated to be $8,200. The equipment would have a salvage value of $14,000 at the end of 6 years. The company's required rate of return is 13%. What is the net present value of this investment if the equipment costs $250,000? (Ignore income taxes.)
A) $2,800
B) ($51,393)
C) $11,768
D) ($84,173)
Correct Answer:
Verified
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