Question
Required information Skip to question [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment
Required information
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[The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $8.28million, and the equipment has a useful life of 6 years with a residual value of $1,200,000. The company will use straight-line depreciation. Beacon could expect a production increase of 32,000 units per year and a reduction of 20 percent in the labor cost per unit.
Current (no automation) | Proposed (automation) | ||||||||
75,000 units | 107,000 units | ||||||||
Production and sales volume | Per Unit | Total | Per Unit | Total | |||||
Sales revenue | $ | 95 | $ ? | $ | 95 | $ ? | |||
Variable costs | |||||||||
Direct materials | $ | 19 | $ | 19 | |||||
Direct labor | 30 | ? | |||||||
Variable manufacturing overhead | 11 | 11 | |||||||
Total variable manufacturing costs | 60 | ? | |||||||
Contribution margin | $ | 35 | ? | $ | 41 | ? | |||
Fixed manufacturing costs | $ 1,230,000 | $ 2,190,000 | |||||||
Net operating income | ? | ? | |||||||
Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.)
1-b. Does Beacon Company favor automation?
yes
no
2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)
3. Determine the project's payback period. (Round your answer to 2 decimal places.)
4. Using a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment. (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.)
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.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.)
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