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. 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 Current (no automation) 82,000 units Proposed (automation) 125,000 units Per Unit Per Total Unit Total $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 40 ? $ 56 ? $ 59 ? $ 1,240,000 $ 2,330,000 ? ?

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. 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 Current (no automation) 82,000 units Proposed (automation) 125,000 units Per Unit Per Total Unit Total $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 40 ? $ 56 ? $ 59 ? $ 1,240,000 $ 2,330,000 ? ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Hit or Miss Sports is introducing a new product this year. If its see-at-night soccer balls are a hit, the firm expects to be able to sell 42,700 units a year at a price of $64 each. If the new product is a bust, only 22,200 units can be sold at a price of $41. The variable cost of each ball is $27 and fixed costs are zero. The cost of the manufacturing equipment is $5.92 million, and the project life is estimated at 9 years. The firm will use straight-line depreciation over the 9-year life of the project. The firm's tax rate is 35% and the discount rate is 13%. Now suppose that Hit or Miss Sports can expand production if the project is successful. By paying its workers overtime, it can increase production by 20,100 units; the variable cost of each ball will be higher, equal to $32 per unit. By how much does this option to expand production increase the NPV of the project? Assume that the firm decides whether to expand production after it learns the first-year sales results. (Round…
The Datum Co. has recently completed a $200, 000, two - year marketing study. Based on the results of the study, Datum has estimated that 6, 000 units of its new electro - optical data scanner could be sold annually over the next 8 years, at a price of $8, 000 each. Variable costs per unit are $4,400, and fixed costs total $5.4 million per year. Start - up costs include $17.6 million to build production facilities, $1.5 million for land, and $4 million in net working capital. The $17.6 million facility will be depreciated on a straight - line basis to a value of zero over the eight — year life of the project. At the end of the projects life, the facilities (including the land) will be sold for an estimated $4.7 million. The value of the land is not expected to change during the eight year period. Finally, start — up would also entail tax - deductible expenses of $0.4 million at year zero. Datum is an ongoing, profitable business and pays taxes at a 35% rate on all income and capital…
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.23 million, and the equipment has a useful life of 8 years with a residual value of $1,070,000. 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. Production and sales volume Current (no automation) 80,000 units Proposed (automation) 120,000 units Per Unit Total Per Unit Total Sales revenue $ 91 $ ? $ 91 $ ? Variable costs Direct materials $ 17 $ 17 Direct labor 30? Variable manufacturing overhead 9 9 Total variable manufacturing costs 56? Contribution margin $ 35 ? $ 41 ? Fixed manufacturing costs 1,140,000 2,260,000 Net operating income ? ? Required: 3. Determine the project's payback period.
Operating costs are an important criteria when selecting what machinery would be the best choice for a company. What is the EUAW of this investment that costs $53,700, has annual benefits of $8,162/year, annual costs of $1,540/year, and a disposal cost of $4,800 at the end of its useful life? It has a useful life of 14 years. Use a 15% MARR.
Jordan Corporation is considering a new product that will be very popular for a couple of years and then slowly lose its commercial appeal. Sales are projected to be $90,000 in year one, $100,000 in year two, $60,000 in year three, $40,000 in year four, $20,000 in year five, and $10,000 in the final year six. Expenses are expected to be 40% of sales with net working capital requirements to be 15% of the following time period’s revenue. Equipment of $126,000 will be required for the launch of the product; this equipment can be depreciated straight-line over six years and will be worthless at the end of the project. The Tax Rate is 20% and the opportunity cost of capital is 14.5%. What is the Internal Rate of Return (rounded to two places)? Multiple Choice 32.61% None of the above 13.39% 18.32% 19.46%
Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. After careful study, Oakmont estimated the following costs and revenues for the new product: When the project concludes in four years the working capital will be released for investment elsewhere within the company. Required: Using Excel (this will save you time and effort) answer the following: Oakmont’s cost of capital is 15%, and management does not feel it should have any adjustment for risk, compute the NPV. Same situation as (a), but management does feel this project does possess a greater than average risk, so 19% should be the required rate of return. Compute the NPV. Management is concerned that Sales Revenues and Expenses could be rising due to inflationary factors. So the projection for year 1 is as shown, but that sales revenues will grow by 2% per year for years 2-4; and that variable expenses will grow by 4% per year for years 2-4, and that fixed out-of-pocket operating…
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 units per year and a reduction of 20 percent in the labor cost per unit. 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 Required: 1-a. Complete the following table showing the totals. Current (no automation) 81,000 Proposed (automation) 128,000 units units Per Unit $94 $ 17 30 9 56 $38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $ ? ? 2,200,000 ?
Bulla Dairy Foods is evaluating acquiring a new production line to manufacture a flavoured thick cream. The cost of purchasing and installing the equipment is estimated to be $1,500,000 today, with an additional $10,000 required for maintenance in the third year of operation. The projected revenue for the first year of operation is $500,000, although it is expected to decline at 5% per annum due to market competition. The annual operating costs are estimated at 20% of the annual revenue. The machine has a lifespan of 5 years, after which it is expected to be sold for 10% of its original cost. The purchase of the production line will be financed 60% through debt, which carries an interest rate of 6% per annum, while shareholders expect a return that is 3% higher than creditors. a) Draw the timeline and set out net cash flows by year. b) Calculate the weighted average cost of capital (WACC) of this project. c) Calculate the Net Present Value (NPV) of this project. Explain if the project…
Pappy’s Potato has come up with a new product, the Potato Pet (they are freeze-dried to last longer). Pappy’s paid $180,000 for a marketing survey to determine the viability of the product. It is felt that Potato Pet will generate sales of $895,000 per year. The fixed costs associated with this will be $228,000 per year, and variable costs will amount to 24 percent of sales. The equipment necessary for production of the Potato Pet will cost $970,000 and will be depreciated in a straight-line manner for the four years of the product life (as with all fads, it is felt the sales will end quickly). This is the only initial cost for the production. Pappy's has a tax rate of 22 percent and a required return of 16 percent. Calculate the Time 0 cash flow for this project. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to the nearest whole number, e.g., 32. Calculate the annual OCF for this project. Note: Do not round…
A company is planning to purchase a machine that will cost $34,800, will have a six-year life, and will have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. A projected income statement for each year of the asset's life appears below. What is the accounting rate of return for this machine? Sales Costs: Manufacturing Depreciation on machine Selling and administrative expenses Income Multiple Choice O O O 3 5.80% 5.17% 50.00% 17.24%. 33.33%. E $ 105,000 $ 51,200 5,800 45,000 (102,000) $ 3,000 80 F3 a F4 F5 F6 54 85 R D F ןד C V 6 & 7 T Y DII F7 F8 F9 F10 U 8 9 0 0 G H J K L B N M P
What is the reduction in Variable manufacturing cost
Can you kindly help show the steps for calculating the Working Capital for a product line capable of producing 1.25 Million units per year, total estimated investment cost for the new line is $25 Million, selling price is fixed for the project life at $125 per unit. Working capital based on a 2.5-month supply of raw materials and 1.5 months of combined inventory (WIP and finished goods)? Variable costs per unit include $35 for materials, $20 for manufacturing, and $18 for labor. There are additional fixed operating and maintenance costs totaling $14.25 Million per year. Salvage value equal to 20% of the purchase price at the end of the 6-year project life. The Federal tax rate is 23% and State tax rate is 8.75%. MARR of 18%. Inflation is expected to increase the variable and fixed costs by 6.4% after the first year. In years 3- 6, inflation is expected to decline by 1.2% each year (year 2 inflation is 6.4%, year 3 is 5.2%, etc.) The project falls under a 7-year MACRS class life. The…