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 $900,000 and is expected to have a 10-year useful life with no salvage value. The company's required rate of return is 16% 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 7B-1 and Exhibit 7B-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 $900,000 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 a piece of automated equipment that will save $110,000 each year in direct labor and inventory carrying costs. This equipment costs $900,000 and is expected to have a 10-year useful life with no salvage value. The company's required rate of return is 16% 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 7B-1 and Exhibit 7B-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 $900,000 investment? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. 1. Net present value 2. Minimum dollar value
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 $900,000 and is expected to have a 10-year useful life with no salvage value. The
company's required rate of return is 16% 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 7B-1 and Exhibit 7B-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 $900,000 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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