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 $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. 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) 80,000 units Total $ ? Per Unit $ 90 Net present value. $18 25 10 53 $ 37 ? 1,250,000 ? Proposed (automation) 120,000 units Per Unit $ 90 $ 18 ? 10 ? $ 42 Total $? ? 2,350,000 ? Required: 4. Using a discount rate of 15 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.) Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.
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 $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. 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) 80,000 units Total $ ? Per Unit $ 90 Net present value. $18 25 10 53 $ 37 ? 1,250,000 ? Proposed (automation) 120,000 units Per Unit $ 90 $ 18 ? 10 ? $ 42 Total $? ? 2,350,000 ? Required: 4. Using a discount rate of 15 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.) Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 $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.
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)
80,000 units
Total
$?
Per Unit
$ 90
Net present value
85233
$18
10
$37
?
1,250,000
?
Proposed (automation)
120,000 units
Per Unit
$ 90
$18
?
10
?
$ 42
Total
$ ?
?
2,350,000
?
Required:
4. Using a discount rate of 15 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.)
Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer
in whole dollars.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fc9fc7c00-4031-4360-b830-dbba4cd4305a%2F6232b11c-10e8-476e-b489-5f4eb5b7f85d%2Fyffg88w_processed.jpeg&w=3840&q=75)
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 $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.
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)
80,000 units
Total
$?
Per Unit
$ 90
Net present value
85233
$18
10
$37
?
1,250,000
?
Proposed (automation)
120,000 units
Per Unit
$ 90
$18
?
10
?
$ 42
Total
$ ?
?
2,350,000
?
Required:
4. Using a discount rate of 15 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.)
Note: Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer
in whole dollars.
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