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Beacon Company is considering automating its production facility. The initial investment in automation would be $11.31 million, and the equipment has a useful life of
Beacon Company is considering automating its production facility. The initial investment in automation would be $11.31 million, and the equipment has a useful life of 9 years with a residual value of $1,140,000. The company will use straight-line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in the labor cost per unit.
a. Using a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment.
b. Recalculate the NPV using a 10 percent discount rate.
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