Question

Mercredi, Inc., is considering investing in automated equipment with a ten-year useful life. Managers at Highpoint 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? (Ignore income taxes.)

Answer 1

$35,000

Step-by-step explanation:

The computation of the annual net cash inflows from the intangible benefits is shown below:

= Tangibles cost and benefits ÷ PVIFA factor at 14% for 10 years

= $182,560 ÷ 5.2161

= $35,000

Refer to the PVIFA table

We simply divided the tangible cost from the PVIFA factor so that the correct amount could come