Lukow Products is investigating the purchase of a piece 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 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 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? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) 1. Net present value

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Lukow Products is investigating the purchase of a piece 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 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 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?
(Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)
1
Net present value
2.
Minimum dollar value
Transcribed Image Text:Lukow Products is investigating the purchase of a piece 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 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 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? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) 1 Net present value 2. Minimum dollar value
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