Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4] Lukow Products is investigating the purchase of automated equipment that will save $110,000 each year in direct labor and inventory carrying costs. This equipment costs $700,000 and is expected to have a 6-year useful life with no salvage value. The company's required rate of return is 8% 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 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? 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 $700,000 investment? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. 1. Net present value 2. Minimum dollar value
Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4] Lukow Products is investigating the purchase of automated equipment that will save $110,000 each year in direct labor and inventory carrying costs. This equipment costs $700,000 and is expected to have a 6-year useful life with no salvage value. The company's required rate of return is 8% 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 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? 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 $700,000 investment? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. 1. Net present value 2. Minimum dollar value
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4]
Lukow Products is investigating the purchase of automated equipment that will save $110,000 each year in direct labor and
inventory carrying costs. This equipment costs $700,000 and is expected to have a 6-year useful life with no salvage value. The
company's required rate of return is 8% 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 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?
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 $700,000
investment?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
1. Net present value
2. Minimum dollar value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa494233d-3e38-49e6-b2f9-35c2da9973f1%2F94f43d30-13f7-4dbc-a905-e3d7aabc8be0%2Fqaksffk_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 automated equipment that will save $110,000 each year in direct labor and
inventory carrying costs. This equipment costs $700,000 and is expected to have a 6-year useful life with no salvage value. The
company's required rate of return is 8% 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 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?
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 $700,000
investment?
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
1. Net present value
2. Minimum dollar value
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