Neptune Ltd

question 102

Multiple Choice

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 this investment?

• A) ($26,291)
• B) ($47,277)
• C) $225,536
• D) ($60,613)
• E) $93,000

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Definitions:

Actual Costs

The genuine costs incurred in the production of goods or services, including all direct labor, materials, and overhead expenses.

Motivational Effects

The impact of various factors, such as incentives or goal setting, on an individual's willingness to perform or achieve tasks.

Unfavourable Price Variance

The difference between the actual price paid for something and its standard cost, when the actual price is higher.

Price Variance

The difference between the actual cost of a good or service and its standard or expected cost.