Return to question 5 E11-11 (Static) Using NPV to evaluate Mutually Exclusive Projects [LO 11-5) Tulsa Company is considering investing in new bottling equipment and has two options Option A has a lower initial cost but would require a significant expenditure to rebuild the machine after four years: Option has higher maintenance costs, but also has a higher salvage value at the end of its useful life. Tulsa's cost of capital is 11 percent. The following estimates of the cash flows were developed by Tulsa's controller Initial investment Annual cash in love Annual cash out flows Coats to rebuild Salvage value Estimated useful lite Option Option $ 320,000 $ 454.000 150,000 160,000 70,000 75,000 120.000 0 0 24,000 8 years years Required: Calculate NPV (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 amounts should be indicated by a minus sign. Round your "Present Values" to the nearest whole dollar amount.) Answer is complete but not entirely correct. Option A Year Cash Flows Present Value PV factor 11% 0 1-8 $ In tal investment Annual Cash Flows Cost to Rebuild Salvage Net Present Value (220,000) 150,000 $ (70,000) (120,000) 4 5.14615 5.14613 0.65873 $ (320,000) 771,915 (360 227) (79,044) 12,644 Option Year Cash Flows Present Value PV factor 11% Inicial Investment Annual Cash Flows Cost to Rebuild Salvage Net Present Value 0 1-8 4 $ (454,000) 160.000 (75 0001 24000 5.14615 5. 1461 04339 $ (454.000) 323 376 (385,958) 10,414 16.168) Determine which option Tulsa should select? E11-14 (Algo) Calculating ARR, Payback Period and NPV (LO 11-1, 11-2, 11-3) Robertson Resorts is considering whether to expand their Pagosa Springs Lodge. The expansion will create 24 additical rooms for rent. The following estimates are available: Cost of expansion Discount rate Useful life Annual rental income Annual operating expenses $5,020,000 90 20 $1,300,000 $ 850,000 Robertson uses straight-line depreciation and the lodge expansion will have a residual value of $2,040,000 Required: 1. Calculate the annual net operating income from the expansion 2. Calculate the annual net cash inflow from the expansion 3. Calculate the ARR (Round your answer to 2 decimal places.) 4. Calculate the payback period. (Round your answer to 1 decimal place.) 5. Calculate the NPV (Future Value of $1. Present Value of $1. Future Value Annulty of $1. Present Value Annuity of $1) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.) 1. Annual Operating Income 2. Annual Net Cash Inflow 3. ARR 4. Payback Period 5 NPV % years Check my work 8 Part 1015 0.41 points Required information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) The foilowing information applies to the questions displayed below) Beacon Company is considering automating its production facility. The initial investment in automation would be $766 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 45,000 units per year and a reduction of 20 percent in the labor cost per unit 2.2 Defence Current in Proposed automation (automation) 84.000 units 129.000 units re Per Products and sales volume Unit sota Unit Total Sales revenge . 97 $7 . 97 $ Variable coste Direct materials 19 3 19 Direct Isber 15 7 Vatible facturing overhead 11 11 Total variable manufacturing conta 45 2 Contribution angle 1 52 S55 2 Fixed maturing 23.050.000 1.200.000 Het ong income ? PA11-2 Part 1 Required: 1a Complete the following table showing the totais (Enter your answers in whole dollars, not in millions.) Current no automation 34,000 units Par Unit Total $ 97 Proposed automation 129.000 UN Per Unit Total 97 5 19 15 $ Production and Sales Volume Sales revenue Variable costs Directions Director Variable manufacturing overhead Total variabile mang costs Contributionary Faemantauringos Nel operating 19 11 11 23 5 52 5 55 $ 1060.000 $ 2.240.000 ME Sw SHI art 2 of 5 41 Required Information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) The following information applies to the questions displayed below] Beacon Company is considering automating its production facility. The initial investment in automation would be $7.66 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 45,000 units per year and a reduction of 20 percent in the labor cost per unit Book AL ter Proposed {automation) 129,000 units Per Unit Total $ 97 57 References Current (no automation) 84,000 units Production and sales volume Unit Total Sales revenue 5 97 57 Variable costs Direet materials 5 19 Direct labor 15 Variable manufacturing overhead 11 Total variable manufacturing coat Contribution margin $ 52 Fixed manufacturing costs 5 1.060,000 Net operating income S 19 2 11 2 5 55 2 $ 2.240.000 7 PA11-2 Part 2 2. Determine the project's accounting rate of return. (Round your answer to 2 decimal places.) Accounting rate of reum Mc Grow EOC 11-20 Sad Help Save & Exit Submit Check my work 10 Part 5 0.41 pot Required Information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2. 11-3, 11-5) The following information applies to the questions displayed below! Beacon Company is considering automating its production facility. The initial investment in automation would be $766 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 45.000 units per year and a reduction of 20 percent in the labor cost per unit A Proposed (automation) 129,000 units Per Unit Total $ 97 Current to automation) 14.000 units Per Production and sales vols Osit Total Sales revenue $ 97 $? Variable costa Direct Material 19 Direct labor 15 Variable manufacturing overhead Total variable manufacturing Boots 45 Costieri 52 2 Fixed matricts 5 1.060.000 et gering income 19 7 7 35 $ 33.240.000 PA11-2 Part 3 3. Determine the project's payback period (Round your answer to 2 decimal places.) yen ME GEW Check my work 11 Part of Required information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) The following information applies to the questions displayed below) 0.41 points Beacon Company is considering automating its production facility. The initial investment in automation would be 5766 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 45,000 units per year and a reduction of 20 percent in the labor cost per unit ook Proposed (automaties) 129,000 units Per Unit Total 5 97 $? References 5 Current no automation 84.000 units Per Production and sales volume Uit Total Sales revenue $ 97 57 Variable costs Direct materials 5 19 Direct labor 15 Variable manufacturing overhead Total variable manufacturing coats 65 Contribution margin S 32 Tixed manufacturing costs $ 1.060.000 Set operating Income -7 19 7 11 7 $ 55 52.240,000 PA11-2 Part 4 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. Exture Value Annuity of St. 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 presenta Mc Graw Hill