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 $8.79 million, and the equipment has a useful life of 7 years with a residual value of $1,160,000. The company will use straight- line depreciation. Beacon could expect a production increase of 46,000 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 $ 16 Direct labor 15 Variable manufacturing overhead_ 11 Total variable manufacturing costs 42 $ 53 Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 72,000 units Per Unit $95 Net present value Total $ ? ? $ 1,110,000 ? Proposed (automation) 118,000 units Per Unit $95 $ 16 ? 11 ? $ 56 Total $ ? $2,250,000 ? 4. Using a discount rate of 13 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.) (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 $8.79 million, and the equipment has a useful life of 7 years with a residual value of $1,160,000. The company will use straight- line depreciation. Beacon could expect a production increase of 46,000 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 $ 16 Direct labor 15 Variable manufacturing overhead_ 11 Total variable manufacturing costs 42 $ 53 Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 72,000 units Per Unit $95 Net present value Total $ ? ? $ 1,110,000 ? Proposed (automation) 118,000 units Per Unit $95 $ 16 ? 11 ? $ 56 Total $ ? $2,250,000 ? 4. Using a discount rate of 13 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.) (Use appropriate factor(s) from the tables provided. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.)
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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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 $8.79
million, and the equipment has a useful life of 7 years with a residual value of $1,160,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 46,000 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
wake
costs
Contribution margin
Fixed manufacturing costs
Net operating income
Per
Unit
$ 95
$ 16
15
11
42
$53
Net present value
Current (no
automation)
72,000 units
Total
$ ?
?
$ 1,110,000
?
Proposed
(automation)
118,000 units
Per
Unit
$ 95
$ 16
?
11
?
$ 56
Total
$ ?
?
$ 2,250,000
?
4. Using a discount rate of 13 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.) (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%2F451dcf36-3021-4a15-9600-8c527dad287f%2F6eedddd0-fbc6-4021-9dab-7c629d6db5c2%2Ffzt01mf_processed.png&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 $8.79
million, and the equipment has a useful life of 7 years with a residual value of $1,160,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 46,000 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
wake
costs
Contribution margin
Fixed manufacturing costs
Net operating income
Per
Unit
$ 95
$ 16
15
11
42
$53
Net present value
Current (no
automation)
72,000 units
Total
$ ?
?
$ 1,110,000
?
Proposed
(automation)
118,000 units
Per
Unit
$ 95
$ 16
?
11
?
$ 56
Total
$ ?
?
$ 2,250,000
?
4. Using a discount rate of 13 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.) (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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