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The Neptune Company offers network communications systems to computer users. The company is planning a major...

The Neptune Company offers network communications systems to computer users. The company is planning a major investment expansion but is unsure of the cost of equity capital as it has no publicly-traded equity. Your assignment is to determine an appropriate equity cost. List and explain the steps you will need to take to complete this assignment.

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Answer #1
  1. Cash flows are required to be estimated over the project period.
  2. Estimating the required rate of return for discounting purpose to calculate time value of money based on the riskiness of the project.
  3. Calculation of the present value of the total cash inflows can be done using the pv factor of annuity as per the required rate of return.
  4. identifying a salvage value indicating cash inflows beyond the project period.
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