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 intermediate calculations. Round your answer to the nearest whole dollar amount.
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 intermediate calculations. Round your answer to the nearest whole dollar amount.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 51P: Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new...
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Transcribed Image Text: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 intermediate calculations. Round your answer to the nearest whole dollar
amount.
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