Lukow Products is investigating the purchase of a piece of automated equipment that will save $140,000 each year in direct labor and inventory carrying costs. This equipment costs $850,000 and is expected to have a 5-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.
Required:
What dollar value per year would these intangible benefits have to have to make the equipment an acceptable investment? (Use the tables to determine the discount rate.)