Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Dhapa
![Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4]
Lukow Products is investigating the purchase of a piece of automated equipment that will save $110,000 each year in direct labor and
inventory carrying costs. This equipment costs $820,000 and is expected to have a 7-year useful life with no salvage value. The
company's required rate of return is 7% 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 $820,000 investment?
(Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
1. Net present value
2. Minimum dollar value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d9ea52c-ac76-47c8-896f-5164b734aaba%2Fa5955c9c-e355-4c6c-aad4-e0fff7af5ab5%2Fs9p61k_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4]
Lukow Products is investigating the purchase of a piece of automated equipment that will save $110,000 each year in direct labor and
inventory carrying costs. This equipment costs $820,000 and is expected to have a 7-year useful life with no salvage value. The
company's required rate of return is 7% 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 $820,000 investment?
(Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
1. Net present value
2. Minimum dollar value
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education