Question

In: Accounting

Beacon Company is considering automating its production facility. The initial investment in automation would be $7.17...

Beacon Company is considering automating its production facility. The initial investment in automation would be $7.17 million, and the equipment has a useful life of 6 years with a residual value of $1,110,000. The company will use straight-line depreciation. Beacon could expect a production increase of 42,000 units per year and a reduction of 20 percent in the labor cost per unit.

Current (no automation) Proposed (automation)
73,000 units 115,000 units
Production and sales volume Per Unit Total Per Unit Total
Sales revenue $ 95 $ ? $ 95 $ ?
Variable costs
Direct materials $ 16 $ 16
Direct labor 15 ?
Variable manufacturing overhead 9 9
Total variable manufacturing costs 40 ?
Contribution margin $ 55 ? $ 58 ?
Fixed manufacturing costs $ 1,140,000 $ 2,270,000
Net operating income ? ?

3. Determine the project's payback period. (Round your answer to 2 decimal places.)

4. Using a discount rate of 13 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 8 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.)

Solutions

Expert Solution


Related Solutions

Beacon Company is considering automating its production facility. The initial investment in automation would be $10.13...
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.13 million, and the equipment has a useful life of 8 years with a residual value of $1,090,000. The company will use straight-line depreciation. Beacon could expect a production increase of 41,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) Proposed (automation) 72,000 units 113,000 units Production and sales volume Per Unit Total Per Unit...
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.60...
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.60 million, and the equipment has a useful life of 8 years with a residual value of $1,120,000. The company will use straight-line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) Proposed (automation) 77,000 units 115,000 units Production and sales volume Per Unit Total Per Unit...
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.60...
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.60 million, and the equipment has a useful life of 8 years with a residual value of $1,120,000. The company will use straight-line depreciation. Beacon could expect a production increase of 38,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) Proposed (automation) 77,000 units 115,000 units Production and sales volume Per Unit Total Per Unit...
Beacon Company is considering automating its production facility. The initial investment in automation would be $8.75...
Beacon Company is considering automating its production facility. The initial investment in automation would be $8.75 million, and the equipment has a useful life of 7 years with a residual value of $1,050,000. The company will use straight-line depreciation. Beacon could expect a production increase of 41,000 units per year and a reduction of 20 percent in the labor cost per unit.          Current (no automation) Proposed (automation) Production and sales volume 87,000 units 128,000 units Per Unit Total Per Unit...
Beacon Company is considering automating its production facility. The initial investment in automation would be $11.62...
Beacon Company is considering automating its production facility. The initial investment in automation would be $11.62 million, and the equipment has a useful life of 9 years with a residual value of $1,090,000. The company will use straight-line depreciation. Beacon could expect a production increase of 41,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) Proposed (automation) 77,000 units 118,000 units Production and sales volume Per Unit Total Per Unit...
Beacon Company is considering automating its production facility. The initial investment in automation would be $8.04...
Beacon Company is considering automating its production facility. The initial investment in automation would be $8.04 million, and the equipment has a useful life of 6 years with a residual value of $1,140,000. The company will use straight-line depreciation. Beacon could expect a production increase of 41,000 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 117,000 units Per Unit Total Per Unit...
The following information applies to the questions displayed below.] Beacon Company is considering automating its production...
The following information applies to the questions displayed below.] 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. Current (no automation) Proposed (automation) Production and sales volume...
A. Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the...
A. Lobster Trap Company is considering automating its manufacturing facility. Company information before and after the proposed automation follows: Before Automation After Automation Sales revenue $ 198,000 $ 198,000 Less: Variable cost 93,000 57,000 Contribution margin $ 105,000 $ 141,000 Less: Fixed cost 20,000 57,000 Net operating income $ 85,000 $ 84,000 Required: Compute Lobster Trap’s degree of operating leverage before and after automation. (Round your answers to 4 decimal places.) 1. Calculate Lobster Trap’s break-even sales dollars before and...
Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating...
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 $6.41 million, and the equipment has a useful life of 5 years with a residual value of $1,160,000. The company will use straight-line depreciation. Beacon could expect a production increase of 48,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) Proposed (automation) 73,000 units...
Required information [The following information applies to the questions displayed below.] Beacon Company is considering automating...
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 $6.41 million, and the equipment has a useful life of 5 years with a residual value of $1,160,000. The company will use straight-line depreciation. Beacon could expect a production increase of 48,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) Proposed (automation) 73,000 units...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT