Answer:
The intangible benefits will be required to have a value of $ 100 000.
Explanation:
To calculate the return on the equipment (ROI) we consider the profit/saving it contributes over the cost of the equipment.
Currently we have a save to costs of $400000 (increases revenue) and a cost of $2500000.
Our current return on the asset is 400/2500 * 100 which equates to 16%.
Management requires a rate of return of 20% thus the intangible benefits need to make up 4%
we can determine the dollar value by determining 20% of the cost of equipment. 2500 * 20% = 500 ( using thousands, $ ' 000)
500 - 400 = 100.
The value of the intangible assets will be required to be $ 100 000.
If we add this into the ROI formula we now have 500 / 2500 * 100 = 20%.
Thus management's requirement is now met