Question
Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs.
Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $720,000 and is expected to have a 5-year useful life with no salvage value. The companys required rate of return is 10% 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 8B-1 and Exhibit 8B-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? (Round discount factor(s) to 3 decimal places.)
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