(Ignore income taxes in this problem.) Norris Company is considering investing i
ID: 2388225 • Letter: #
Question
(Ignore income taxes in this problem.) Norris Company is considering investing in automated equipment with a ten-year useful life. Managers have estimated the cash flows associated with the tangible costs and benefits of automation, but have been unable to estimate the cash flows associated with the intangible benefits. Using the company's 14% required rate of return, the net present value of the cash flows associated with just the tangible costs and benefits is a negative $182,560. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment?Explanation / Answer
they would have to have at least a present value equal to positive 182,560.
Putting into a financial calculator n = 10, i = 14%, PV = 182,560, and solving for payment gives 34999.22.
Rounding up, $35,000 cash inflow from intangible benefits per year for 10 years would make this an acceptable investment.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.