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

question 38

Multiple Choice

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.
-The time value of money

• A)is equal to the rate of inflation.
• B)includes the rate of inflation.
• C)is the same value for all companies.
• D)is equal to the bank prime rate.
• E)is the opportunity cost of not having the money today.

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Definitions:

Partial Equity Method

An accounting method used for investments, where the investor recognizes part of the investee's income based on the percentage owned.

Unamortized Trademark

The portion of a trademark's cost that has not yet been expensed over its useful life.

Equity Method

An accounting technique used by firms to assess the profits earned through their investment in other companies by reporting these earnings as income.

Amortization

The gradual reduction of a debt over a period of time through regular payments.