Question
Lukow Products is investigating the purchase of a piece of automated equipment that will save $150,000 each year in direct labor and inventory carrying costs.
Lukow Products is investigating the purchase of a piece of automated equipment that will save $150,000 each year in direct labor and inventory carrying costs. This equipment costs $860,000 and is expected to have a 6-year useful life with no salvage value. The companys required rate of return is 14% 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.
What dollar value per year would these intangible benefits have to have to make the equipment an acceptable investment?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started