Uncertain Future Cash Flows [LO3]

Union Bay Plastics is investigating the purchase of automated equipment that would save $100,000 each year in direct labor and inventory carrying costs. This equipment costs $750,000 and is expected to have a 10-year useful life with no salvage value. The company’s required rate of return is 15%

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 have in order to make the equipment an acceptable investment?