PA11-2 (Static) Making Automation Decision [LO 11-1, 11-2, 11-3, 11-5]

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Beacon Company is considering automating its production facility. The initial investment in automation would be $15 million, and the equipment has a useful life of 10 years with a residual value of $500,000. The company will use straight-line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit.

Production and sales volume	Current (no automation) 80,000 units		Proposed (automation) 120,000 units
	Per Unit	Total	Per Unit	Total
Sales revenue	$ 90	$ ?	$ 90	$ ?
Variable costs
Direct materials	$ 18		$ 18
Direct labor	25		?
Variable manufacturing overhead	10		10
Total variable manufacturing costs	53		?
Contribution margin	$ 37	?	$ 42	?
Fixed manufacturing costs		1,250,000		2,350,000
Net operating income		?		?

PA11-2 Part 5

Required:

5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.)

Note: Use appropriate factor(s) from the tables provided. Enter the answer in whole dollars.