Question
Lukow Products is investigating the purchase of automated equipment that will save $100,000 each year in direct labor and inventory carrying costs. This equipment costs
Lukow Products is investigating the purchase of automated equipment that will save $100,000 each year in direct labor and inventory carrying costs. This equipment costs $890,000 and is expected to have a 6-year useful life with no salvage value. The companys required rate of return is 9% on all equipment purchases. Management expects this equipment to provide intangible benefits such as greater flexibility and higher-quality output that will increase future cash inflows.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using table.
Required:
- What is the net present value of the piece of equipment before considering its intangible benefits?
Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.
- What minimum dollar value per year must be provided by the equipments intangible benefits to justify the $890,000 investment?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
Lukow Products is investigating the purchase of automated equipment that will save $100,000 each year in direct labor and inventory carrying costs. This equipment costs $890,000 and is expected to have a 6 -year useful life with no salvage value. The company's required rate of return is 9% on all equipment purchases. Management expects this equipment to provide intangible benefits such as greater flexibility and higher-quality output that will increase future cash inflows. Click here to view Exhibit 14B-1 and to determine the appropriate discount factor(s) using table. Required: 1. What is the net present value of the piece of equipment before considering its intangible benefits? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $890,000 investment? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount
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