Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $920,000 and is expected to have a 6-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 8B-1 and Exhibit 8B-2. to determine the appropriate discount factor(s) using table.
Required:
What dollar value per year would these intangible benefits have to have to make the equipment an acceptable investment? (Round discount factor(s) to 3 decimal places.)
![EXHIBIT 8B-2 Present Value of an Annuity of $1 in Arrears; 11 - 12 ton] Periods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16%](http://img.homeworklib.com/questions/c4cf36f0-01d4-11ea-884d-ab20f63f3d61.png?x-oss-process=image/resize,w_560)
Homework Answers
| Annual value | ||||
| Choose Numerator: | / | Choose Denominator: | = | Annual value |
| Required increase in present value | / | Factor for 6 years | = | Annual value |
| 369970 | / | 4.231 | = | 87443 |
| Workings: | ||||
| Annual cash flows | 130000 | |||
| X PV factor | 4.231 | =(1-(1.11)^-6)/0.11 | ||
| Present value of Annual cash flows | 550030 | |||
| Less: Investment cost | 920000 | |||
| Net Present value | -369970 | |||
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Lukow Products is investigating the purchase of a piece of automated equipment that will save $130,000 each year in direct labor and inventory carrying costs
Lukow Products is investigating the purchase of a piece of automated equipment that will save $120,000 each year in direct labor and inventory carrying costs
Lukow Products is investigating the purchase of a piece of automated equipment that will save $120,000 each year in direct labor and inventory carrying costs. This equipment costs $910,000 and is expected to have a 11-year useful life with no salvage value. The company's required rate of return is 10% 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...
Exercise 13-4 Uncertain Future Cash Flows [LO13-4] Lukow Products is investigating the purchase of a piece...
Exercise 13-4 Uncertain Future Cash Flows [LO13-4] Lukow Products is investigating the purchase of a piece of automated equipment that will save $100,000 each year in direct labor and inventory carrying costs. This equipment costs $890,000 and is expected to have a 6-year useful life with no salvage value. The company’s required rate of return is 9% on all equipment purchases. Management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result...
Exercise 14-4 (Static) Uncertain Future Cash Flows [L014-4] Lukow Products Is Investigating the purchase of a...
Exercise 14-4 (Static) Uncertain Future Cash Flows [L014-4] Lukow Products Is Investigating the purchase of a plece 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...
Exercise 14-4 (Algo) Uncertain Future Cash Flows [LO14-4]
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Lukow Products is investigating the purchase of a piece of automated equipment that will save $100,000...
Lukow Products is investigating the purchase of a piece of
automated equipment that will save $100,000 each year in direct
labor and inventory carrying costs. This equipment costs $750,000
and is expected to have a 7-year useful life with no salvage value.
The company’s required rate of return is 7% 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...
Croce, Inc., is investigating an investment in equipment that would have a useful life of 8...
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(Ignore income taxes in this problem.) Peter wants to buy a computer which he expects to...
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“I’m not sure we should lay out $375,000 for that automated welding machine,” said Jim Alder,...
“I’m not sure we should lay out $375,000 for that automated
welding machine,” said Jim Alder, president of the Superior
Equipment Company. “That’s a lot of money, and it would cost us
$99,000 for software and installation, and another $5,500 every
month just to maintain the thing. In addition, the manufacturer
admits that it would cost $62,000 more at the end of three years to
replace worn-out parts.”
“I admit it’s a lot of money,”
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The management of Hansley Corporation is investigating an investment in equipment that would have a useful...
The management of Hansley Corporation is investigating an investment in equipment that would have a useful life of 5 years. The company uses a discount rate of 18% in its capital budgeting. Good estimates are available for the initial investment and the annual cash operating outflows, but not for the annual cash inflows and the salvage value of the equipment. The net present value of the initial investment and the annual cash outflows is -$273,300. (Ignore income taxes.) Click here...
Please show work, thank you "I'm not sure we should lay out $310,000 for that automated...
Please show work, thank you
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Exercise 14-4 (Static) Uncertain Future Cash Flows [L014-4] Lukow Products Is Investigating the purchase of a plece 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...
Lukow Products is investigating the purchase of a piece of
automated equipment that will save $100,000 each year in direct
labor and inventory carrying costs. This equipment costs $750,000
and is expected to have a 7-year useful life with no salvage value.
The company’s required rate of return is 7% 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...
Croce, Inc., is investigating an investment in equipment that would have a useful life of 8 years. The company uses a discount rate of 11% in its capital budgeting. The net present value of the investment, excluding the salvage value, is -$580,353. (lgnore income taxes.) Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using the tables provided. How large would the salvage value of the equipment have to be to make the investment...
“I’m not sure we should lay out $375,000 for that automated
welding machine,” said Jim Alder, president of the Superior
Equipment Company. “That’s a lot of money, and it would cost us
$99,000 for software and installation, and another $5,500 every
month just to maintain the thing. In addition, the manufacturer
admits that it would cost $62,000 more at the end of three years to
replace worn-out parts.”
“I admit it’s a lot of money,”
said Franci Rogers, the...
The management of Hansley Corporation is investigating an investment in equipment that would have a useful life of 5 years. The company uses a discount rate of 18% in its capital budgeting. Good estimates are available for the initial investment and the annual cash operating outflows, but not for the annual cash inflows and the salvage value of the equipment. The net present value of the initial investment and the annual cash outflows is -$273,300. (Ignore income taxes.) Click here...
Please show work, thank you
"I'm not sure we should lay out $310,000 for that automated welding machine," said Jim Alder, president of the Superior Equipment Company. "That's a lot of money, and it would cost us another $50,400 per year just to maintain the thing. In addition, the manufacturer admits it would cost $49,000 more at the end of three years to replace worn-out parts." $86,000 for software and installation, and "I admit it's a lot of money," said...
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