Beacon Company is considering automating its production facility. The initial investment in automation would be$6.46 million, and the equipment has a useful life of 5 years with a residual value of $1,060,000. The company willuse straight-line depreciation. Beacon could expect a production increase of 43,000 units per year and a reductionof 20 percent in the labor cost per unit.Production and sales volumeSales revenueVariable costsDirect materialsDirect laborVariable manufacturing overheadTotal variable manufacturing costsContribution marginFixed manufacturing costsNet operating income.PerUnit$ 98Net present value$18251154$44Current (noautomation)76,000 unitsTotal$ ??$1,220,000?Proposed (automation)119,000 unitsPerUnit$98$18?11?$49Total$??$ 2,190,000?Check my we5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, PresentValue 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.)

NPV is used to evaluate the investment and financing decisions that involve cash flows occurring…

Answered: Beacon Company is considering…

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

Problem 1PS

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Your company has been doing well, reaching $1.02 million in earnings, and is considering launching a new product. Designing the new product has already cost $510,000. The company estimates that it will sell 773,000 units per year for $3.05 per unit and variable non-labor costs will be $1.09 per unit. Production will end after year 3. New equipment costing $1.01 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $302,000. The new product will require the working capital to increase to a level of $387,000 immediately, then to $399,000 in year 1, in year 2 the level will be $341,000, and finally in year 3 the level will return to $302,000. Your tax rate is 21%. The discount rate for this project is 9.7%. Do the capital budgeting analysis for this project and calculate its NPV. Note: Assume that the equipment is put into use in year…
Thunderbolt Corporation is considering an investment project to produce electric gadgets. Cathie Wood projected unit sales of these gadgets to be 10,000 in the first year, with growth of 6.5 percent each year over the subsequent five years (so the total project life is six years). Production of these gadgets will require $1,200,000 in net working capital to start. The net working capital will be recovered at the end of the project. Total fixed costs are $3,000,000 per year, variable production costs are $350 per unit, and the units are priced at $850 each. The equipment needed to begin production will cost $8,400,000. The equipment will be depreciated using the straight-line method over a six-year life and has a pre-tax salvage value of $520,000 when the project closes. The tax rate is 25%. a) Using Excel, set up a table that shows your detailed calculation with formulas of the project cash flows for each year throughout the life of the project.
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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.
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Nikul
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

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