Question
Uncertain Future Cash Flows Hanover Industries is investigating the purchase of automated equipment that would save $100,000 each year in direct labour and inventory carrying
Uncertain Future Cash Flows
Hanover Industries is investigating the purchase of automated equipment that would save $100,000 each year in direct labour and inventory carrying costs. This equipment costs $750,000 and is expected to have a 10-year useful life with no salvage value. The company requires a minimum 15% rate of return on all equipment purchases. This equipment would provide intangible benefits (such as greater flexibility and higher-quality output) that are difficult to estimate and yet are quite significant.
Required:
(Ignore income taxes.)
What dollar value per year would the intangible benefits have to be worth in order to make the equipment an acceptable investment?
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