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Highpoint, 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.
Required:
1. How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment?

Respuesta :

Answer:

The annual net cash inflows from the intangible benefits have to be $35,000 to make this a financially acceptable investment

Explanation:

According to the given data we have the following:

required rate of return=14%

Negative net present value=$182,560

Therefore, in order to calculate How large would the annual net cash inflows from the intangible benefits have to be to make this a financially acceptable investment we would have to use the following formula:

Minimum annual cash flows required=Negative net present value/Present value factor at 14% for 10 years

Present value factor at 14% for 10 years=5.216

Therefore, Minimum annual cash flows required=$182,560/5.216

Minimum annual cash flows required=$35,000

The annual net cash inflows from the intangible benefits have to be $35,000 to make this a financially acceptable investment

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