Question
Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and a $13,500 salvage value. The machine
Assume that a company is considering purchasing a machine for $100,000 that will have a seven-year useful life and a $13,500 salvage value. The machine will lower operating costs by $18,000 per year and increase sales volume by 1,000 units per year. The company earns a contribution margin of $3.00 per unit. The company also expects this investment to provide qualitative benefits that it is struggling to incorporate into its financial analysis. Assuming the companys required rate of return is 17%, the minimum dollar value per year that must be provided by the machines qualitative benefits to justify the $100,000 investment is closest to.
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