Lukow Products is investigating the purchase of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company's required rate of return is 20% 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 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? Note: Enter negative amounts with a minus sign. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $2,500,000 investment? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. 1. Net present value 2. Minimum dollar value
Lukow Products is investigating the purchase of automated equipment that will save $400,000 each year in direct labor and inventory carrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company's required rate of return is 20% 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 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? Note: Enter negative amounts with a minus sign. 2. What minimum dollar value per year must be provided by the equipment's intangible benefits to justify the $2,500,000 investment? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. 1. Net present value 2. Minimum dollar value
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 1MAD: San Lucas Corporation is considering investment in robotic machinery based upon the following...
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