Devon Corporation Uses a Discount Rate of 8% in Its

question 375

Essay

Devon Corporation uses a discount rate of 8% in its capital budgeting. Partial analysis of an investment in automated equipment with a useful life of 8 years has thus far yielded a net present value of -$496,541. This analysis did not include any estimates of the intangible benefits of automating this process nor did it include any estimate of the salvage value of the equipment. (Ignore income taxes.)Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using the tables provided.Required:a. Ignoring any salvage value, how large would the additional cash flow per year from the intangible benefits have to be to make the investment in the automated equipment financially attractive?b. Ignoring any 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?

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Definitions:

Proactive Change

Initiating changes or actions in anticipation of future problems or opportunities, rather than reacting to events after they happen.

Managing Change

The process of steering or directing an organization through a transition, such as a restructuring, technology implementation, or shift in culture or strategy.

Open-Source

Pertaining to software whose source code is made freely available to the public for use, modification, and distribution.

Information Technology

A field of study and employment focusing on the use of computers and telecommunications equipment to store, retrieve, transmit, and manipulate data.