Problem - Union Bay Plastics is investigating the purchase of automated equipment that would save $130,000 each year in direct labor and inventory carrying costs. This equipment costs $840,000 and is expected to have a 5-year useful life with no salvage value. The company's required rate of return is 9% on all equipment purchases. This equipment would provide intangible benefits such as greater flexibility and higher-quality output that are difficult to estimate and yet are quite significant. (Ignore income taxes.)
Use Exhibit 13B-2 to determine the appropriate discount factor(s) using table.
Required: What dollar value per year would the intangible benefits have to have in order to make the equipment an acceptable investment?
Attachment:- Exhibit 13B-2.rar