Question:

Rosenholm Corporation uses a discount rate of 18% in its capital budgeting. Partial analysis of an investment in automated equipment with a needful life of 5 years has therefore far yielded a net present value of ($327,960). This analysis did not include any estimates of the intangible benefits of automating this process nor did it add any estimate of the salvage value of the equipment.

1) Ignoring any slavage value, how large could the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive?

2) Ignoring cash flows from intangible benefits, how large would the salvage value of the automated equipment have to be to make the investment in the automated equipment financially attractive?