Lukow Products is investigating the purchase of a piece of automated equipment that will save $170,000 each year in direct labor andinventory carrying costs. This equipment costs $880,000 and is expected to have a 5-year useful life with no salvage value. Thecompany's required rate of return is 14% on all equipment purchases. Management anticipates that this equipment will provideintangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows.Click here to view Exhibit 12B-1 and Exhibit 12B-2, 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? (Enter negative amount with aminus 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 $880,000 investment?(Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)1. Net present value2. Minimum dollar value

Net Present Value is the present Value of sum of Cash inflows less sum of cash outflows.

Answered: Lukow Products is investigating the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 $780,000 and is expected to have a 6-year useful life with no salvage value. The company's 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 7B-1 and Exhibit 7B-2, 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 $780,000 investment? Note: Do not round…
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