Question
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.78 million, and the equipment has a useful life of
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.78 million, and the equipment has a useful life of 6 years with a residual value of $1,060,000. The company will use straight-line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit.
Current (no automation) | Proposed (automation) | ||||||||
77,000 units | 124,000 units | ||||||||
Production and sales volume | Per Unit | Total | Per Unit | Total | |||||
Sales revenue | $ | 97 | $ ? | $ | 97 | $ ? | |||
Variable costs | |||||||||
Direct materials | $ | 15 | $ | 15 | |||||
Direct labor | 15 | ? | |||||||
Variable manufacturing overhead | 9 | 9 | |||||||
Total variable manufacturing costs | 39 | ? | |||||||
Contribution margin | $ | 58 | ? | $ | 61 | ? | |||
Fixed manufacturing costs | $ 1,140,000 | $ 2,230,000 | |||||||
Net operating income | ? | ? | |||||||
PA11-2 Part 5
5. Recalculate the NPV using a 9 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-text-image.webp)
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Step: 3
![blur-text-image](https://dsd5zvtm8ll6.cloudfront.net/includes/images/document_product_info/blur-subtext-image.webp)
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started