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 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 148-1 and Exhibit 14B-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 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 $720,000 Investment? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 1. Net present value 2. Minimum dollar value $ ***** 50,024
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 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 148-1 and Exhibit 14B-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 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 $720,000 Investment? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 1. Net present value 2. Minimum dollar value $ ***** 50,024
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
1
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 $720,000 and is expected to have a 5-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 14B-1 and Exhibit 14B-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 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 $720,000 investment?
(Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
1. Net present value
2. Minimum dollar value
$
59,924
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