Answered step by step
Verified Expert Solution
Question
1 Approved Answer
! Required information (The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation
! Required information (The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $7.50 million, and the equipment has a useful life of 6 years with a residual value of $1,020,000. The company will use straight-line depreciation. Beacon could expect a production increase of 37,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 83,000 units Per Unit Total $ 93 $ ? Proposed (automation) 120,000 units Per Unit Total $ 93 $ ? Production and sales volume Sales revenue Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income $ 15 20 12 47 $ 46 $ 15 ? 12 ? $ 50 $ 1,060,000 ? ? $ 2,260,000 ? Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.) Current (no automation) 83,000 units Per Unit Total $ 93 Proposed (automation) 120,000 units Per Unit Total Production and Sales Volume Sales revenue $ 93 Variable costs Direct materials $ 15 $ 15 Direct labor 20 12 12 47 Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income $ 46 $ 50 $ 1,060,000 $ 2,260,000 1-b. Does Beacon Company favor automation? 2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.) Accounting rate of return % 3. Determine the project's payback period. (Round your answer to 2 decimal places.) Payback period years 4. Using a discount rate of 14 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.) Net present value 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.) Net present value
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started