Lukow products is investigating the purchase of a piece of automated equipment that will save $100,000 each year in direct labor and inventory carrying costs. this equipment costs $750,000 and is expected to have a 7-year useful life with no salvage value. the company’s required rate of return is 7% on all equipment purchases. management anticipates that this equipment will provide intangible benefits such as greater flexibility and higher-quality output that will result in additional future cash inflows.

The intangible benefit should generate 39,164.92 dollars of cahs flow per year

or a present value of 211,071.06 dollars

Explanation:

The company should evaluate teh investment based on wether or not the required return on the 15% investment is achieve or not:

We should calculate the target PMT and the proceed to an estimation of how muich are this intangible benefits:

PV750,000

time 7 years

rate7% = 7/100 = 0.07

C  $ 139,164.915

explicit cost savings: 100,000

intangible benefit to make the investment worthwhile:

139,164.92 - 100,000 = 39,164.92

we can also solve for the present valeu of the annual intnagible benefit as they can vary every year:

C$ 100,000

time7 years

rate0.07

PV$538,928.9402

investment          750,000

cost savings PV: (538,928.94)

PV of the intangible benefit: 211,071.06

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.

answer; someone must cover the cost associated with the provision of scarce goods in both sectors;