Lukow Products is investigating the purchase of a piece of automated equipment that will save $140,000 each year in direct labor and inventory carryling costs. This equipment costs $790,000 and is expected to have a 7-year useful life with no salvage value. The company's required rate of return is 11% 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 148-1 and Exhibit 148-2, 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 $790,000 investment? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 1. Net present value (579,662) 2 Minimum dollar value
Lukow Products is investigating the purchase of a piece of automated equipment that will save $140,000 each year in direct labor and inventory carryling costs. This equipment costs $790,000 and is expected to have a 7-year useful life with no salvage value. The company's required rate of return is 11% 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 148-1 and Exhibit 148-2, 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 $790,000 investment? (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) 1. Net present value (579,662) 2 Minimum dollar value
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter12: Capital Investment Decisions
Section: Chapter Questions
Problem 51P: Newmarge Products Inc. is evaluating a new design for one of its manufacturing processes. The new...
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Transcribed Image Text:Lukow Products is investigating the purchase of a piece of automated equipment that will save $140.000 each year in direct labor and
inventory carryling costs. This equipment costs $790,000 and is expected to have a 7-year useful life with no salvage value. The
company's required rate of return is 11% 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 148-1 and Exhibit 148-2, 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 $790,000 investment?
(Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
1. Net present value
(579,662)
2 Minimum dollar value
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