Hanover Industries is investigating purchasing automated equipment that would save
Hanover Industries is investigating purchasing automated equipment that would save $100,000 each year in direct labour 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 requires a minimum 15% rate of return 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.
Required:
Ignore income taxes. What dollar value per year would the intangible benefits have to be worth to make the equipment an acceptable investment?
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