Required information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) (The following information applies to the questions displayed below.) Beacon Company is considering automating its production facility. The initial investment in automation would be $10.08 million, and the equipment has a useful life of 8 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 35,000 units per year and a reduction of 20 percent in the labor cost per unit. current (no autonation) 1,000 units Proposed (automation) 116,000 units Per Unit Per Production and sales volune Sales revenue Variable costa birect materials Direct labor Variable manufacturing overhead Total variable manufacturing Unit Total $7 Total $ 95 $ 95 $17 20 $ 17 12 12 49 costs Contribution margin Fixed manutacturing costs $ 46 $ 50 $ 1,210,000 $2,270,000 Net operating income

Required information PA11-2 (Algo) Making Automation Decision (LO 11-1, 11-2, 11-3, 11-5) (The following information applies to the questions displayed below.) Beacon Company is considering automating its production facility. The initial investment in automation would be $10.08 million, and the equipment has a useful life of 8 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 35,000 units per year and a reduction of 20 percent in the labor cost per unit. current (no autonation) 1,000 units Proposed (automation) 116,000 units Per Unit Per Production and sales volune Sales revenue Variable costa birect materials Direct labor Variable manufacturing overhead Total variable manufacturing Unit Total $7 Total $ 95 $ 95 $17 20 $ 17 12 12 49 costs Contribution margin Fixed manutacturing costs $ 46 $ 50 $ 1,210,000 $2,270,000 Net operating income

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Rust Industrial Systems is trying to decide between two different conveyor belt systems. System A costs $260,000, has a four-year life, and requires $80,000 in pretax annual operating costs. System B costs $366,000, has a six-year life, and requires $74,000 in pretax annual operating costs. Both systems are to be depreciated straight-line to zero over their lives and will have zero salvage value. Suppose the company always needs a conveyor belt system; when one wears out, it must be replaced. Assume the tax rate is 25 percent and the discount rate is 9 percent. Calculate the EAC for both conveyor belt systems. Note: Your answers should be negative values and indicated by minus signs. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16. Answer is complete but not entirely correct. System A $ 38,562.29 X System B $ 25,802.08 x Which conveyor belt system should the firm choose? System A System B
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At times firms will need to decide if they want to continue to use their current equipment or replace the equipment with newer equipment. The company will need to do replacement analysis to determine which option is the best financial decision for the company. Price Co. is considering replacing an existing piece of equipment. The project involves the following: • The new equipment will have a cost of $2,400,000, and it is eligible for 100% bonus depreciation so it will be fully depreciated at t = 0. • The old machine was purchased before the new tax law, so it is being depreciated on a straight-line basis. It has a book value of $200,000 (at year 0) and four more years of depreciation left ($50,000 per year). • The new equipment will have a salvage value of $0 at the end of the project's life (year 6). The old machine has a current salvage value (at year 0) of $300,000. • Replacing the old machine will require an investment in net operating working capital (NOWC) of…
I need help with this problem Section b is a simple yes or no
Abbott Mining Systems wants to determine whether it should upgrade a piece of equipment used in deep mining operations in one of its international operations now or later. If the com- pany selects plan A, the upgrade will be purchased now for $200,000. However, if the com- pany selects plan 1, the purchase will be deferred for 3 years when the cost is expected to rise to $300,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 3% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
BAK Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below. Machine A Machine B Original cost $ 77,500 $ 186,000 Estimated life 8 years 8 years Salvage value $ 19,500 $ 39,600 Estimated annual cash inflows $ 5,040 $ 9,800 Estimated annual cash outflows Click here to view the factor table. Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125 and profitability index to 2 decimal places, e.g. 10.50. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Machine A Machine B Net present value Profitability index Which machine should be purchased? should be…
Appendix Four (Equipment Replacement Decision)Objective: The proposed manufacturing plant has a food packaging equipment. The analysis would provide Jacob with decision support as to use that equipment or procure a new one. Scenario:The current equipment was purchased eight years ago for $ 750,000 and has eight useful years remaining. The new machine will cost $ 380,000 and will have the same useful life remaining as the old machine and will have zero disposal value. Currently the annual operating cost is $ 110,000 and will reduce by 50% if the new equipment is purchased. If the new equipment is procured, it will need to be shut down once a year for maintenance purposes. Opportunity cost of the shut down period is as follows:• $ 6,000 in each of the years 1-3• $ 8,000 in each of the years 4 and 5• $ 10,000 in each of the years 6 and 7The old equipment will have limited use and can only fetch $ 120,000 when disposed off at this time.Methodology:The group would calculate the net…
am. 137.
A critical machine in BHP Billiton's copper refining operation was purchased 7 years ago for $160,000. Last year a replacement study was performed with the decision to retain it for 3 more years. The situation has changed. The equipment is estimated to have a value of $8000 if "scavenged" for parts now or anytime in the future. If kept in service, it can be minimally upgraded at a cost of $43,000 to make it usable for up to 2 more years. Its operating cost is estimated at $22,000 in the first year and $29,000 in the second year. Alternatively, the company can purchase a new system, the challenger, that will have an AWC of $-51,000 over its ESL. Use a MARR of 10% per year and annual worth analysis to determine when the company should replace the machine. The AW value of the challenger is $- ◻ ◻ and the AW value of the defender at the end of year 2 is $- 82,834.71 ◻ The company should replace the machine ◻ after two years A critical machine in BHP Billiton's copper refining operation was…
Rust Industrial Systems Company is trying to decide between two different conveyor belt systems. System A costs $350,000, has a 4-year life, and requires $141,000 in pretax annual operating costs. System B costs $430,000, has a 6-year life, and requires $135,000 in pretax annual operating costs. Both systems are to be depreciated straight- line to zero over their lives and will have zero salvage value. Whichever project is chosen, it will not be replaced when it wears out. The tax rate is 22 percent and the discount rate is 8 percent. Calculate the NPV for both conveyor belt systems. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) System A System B Which conveyor belt system should the firm choose? ○ System B O System A
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