Hanover Industries is investigating purchasing automated equipment that would save $100,000 each year in direct labour and

Question:

Hanover Industries is investigating purchasing automated equipment that would save $100,000 each year in direct labour and inventory carrying costs. This equipment costs $750,000 and is expected to have a 10-year useful life with no . The company requires a minimum 15% rate of return on all equipment purchases. This equipment would provide intangible benefits (such as greater flexibility and higher-quality output) that are difficult to estimate and yet are quite significant.
Required:
Ignore income taxes. What dollar value per year would the intangible benefits have to be worth to make the equipment an acceptable investment?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...