Lukow Products is investigating the purchase of a piece of automated equipment that will save $110,000 each year in direct labor and inventory carrying costs. This equipment costs $900,000 and is expected to have a 10-year useful life with no salvage value. The companys required rate of return is 16% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using table.

Required:

What dollar value per year would these intangible benefits have to have to make the equipment an acceptable investment? (Use the tables to determine the discount rate.)

Annual Value
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