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

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Urmila 

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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 $10.31
million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent in
the labor cost per unit.
Current (no
automation)
82,000 units
Proposed
(automation)
125,000 units
Production and sales volume
Per
Unit
Per
Total
Unit
Total
Sales revenue
Variable costs.
Direct materials
Direct labor
Variable manufacturing
overhead
$ 96
$ ?
$ 96
$ ?
$ 16
$ 16
15
?
9
9
Total variable manufacturing
costs
Contribution margin
$ 56
49
40
?
?
$ 59
?
Fixed manufacturing costs
$ 1,240,000
$ 2,330,000
Net operating income
?
?
3. Determine the project's payback period. (Round your answer to 2 decimal places.)
Payback period
years
Transcribed Image Text: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 $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue Variable costs. Direct materials Direct labor Variable manufacturing overhead $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 Total variable manufacturing costs Contribution margin $ 56 49 40 ? ? $ 59 ? Fixed manufacturing costs $ 1,240,000 $ 2,330,000 Net operating income ? ? 3. Determine the project's payback period. (Round your answer to 2 decimal places.) Payback period years
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