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Union Bay Plastics is investigating the purchase of automated equipment that would save $100,000 each year in direct labor and inventory carrying costs. This equipment costs $750,000 and is expected to have a 10-year useful life with no salvage value. The company’s required rate of return is 15% on all equipment purchases. This equipment would provide intangible benefits such as greater flex- ibility and higher-quality output that are difficult to estimate and yet are quite significant.
Required:
(Ignore income taxes.)
What dollar value per year would the intangible benefits have to have in order to make the equip- ment an acceptable investment?
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