Abhaliya esLukow Products is investigating the purchase of automated equipment that will save $400,000 each year in direct labor and inventorycarrying costs. This equipment costs $2,500,000 and is expected to have a 15-year useful life with no salvage value. The company'srequired rate of return is 20% on all equipment purchases. Management expects this equipment to provide intangible benefits such asgreater 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 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?Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.1. Net present value2. Minimum dollar value

Lukow Products is investigating the purchase 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 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 148-1 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 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? 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 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 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 148-1 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 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? Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. 1. Net present value 2. Minimum dollar value

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 2CE

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Caduceus Company is considering the purchase of a new piece of factory equipment that will cost $565,000 and will generate $135,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return In Excel, see Appendix C.
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