In: Accounting
Beacon Company is considering automating its production
facility. The initial investment in automation would be $10.49
million, and the equipment has a useful life of 9 years with a
residual value of $1,040,000. The company will use straight-line
depreciation. Beacon could expect a production increase of 44,000
units per year and a reduction of 20 percent in the labor cost per
unit.
Current (no automation) | Proposed (automation) | ||||||||
Production and sales volume | 76,000 units | 120,000 units | |||||||
Per Unit | Total | Per Unit | Total | ||||||
Sales revenue | $ | 90 | ? | $ | 90 | ? | |||
Variable costs | |||||||||
Direct materials | $ | 20 | $ | 20 | |||||
Direct labor | 25 | ? | |||||||
Variable manufacturing overhead | 10 | 10 | |||||||
Total variable manufacturing costs | 55 | ? | |||||||
Contribution margin | $ | 35 | ? | $ | 40 | ? | |||
Fixed manufacturing costs | $ 1,160,000 | $ 2,190,000 | |||||||
Net operating income | ? | ? | |||||||
4
Required:
1-a. Complete the following table showing the totals.
(Enter all answers in whole dollars.)
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.
7.
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 dollar. Round the final answer to nearest whole dollars.)
8.
value:
1.53 points
Required information
5. Recalculate the NPV using a 9% 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 dollar. Round the final answer to nearest whole
dollars.)