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 $7.40 million, and the equipment has a useful life of 6 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Current (no automation) 77,000 units Per Unit Total $93 $? Proposed (automation) 113,000 units Total Per Unit $93
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 $7.40 million, and the equipment has a useful life of 6 years with a residual value of $1,040,000. The company will use straight- line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Sales revenue Current (no automation) 77,000 units Per Unit Total $93 $? Proposed (automation) 113,000 units Total Per Unit $93
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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Vikrambahi
![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 $7.40
million, and the equipment has a useful life of 6 years with a residual value of $1,040,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in
the labor cost per unit.
Current (no
automation)
77,000 units
Proposed
(automation)
113,000 units
Per
Per
Production and sales volume
Unit
Total
Unit
Total
Sales revenue
$ 93
$ ?
$ 93
$ ?
Variable costs.
Direct materials
$ 16
$ 16
Direct labor
25
?
Variable manufacturing overhead
10
Total variable manufacturing costs
51
10
?
Contribution margin
$ 42
?
$ 47
?
Fixed manufacturing costs
$ 1,240,000
$ 2,330,000
Net operating income
?
?
3. Determine the project's payback period. (Round your answer to 2 decimal places.)
Payback period
years](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe5f18ebb-354b-4817-8c8e-80b942997af4%2Ff60a3a14-fe82-4e66-8fbb-374074931819%2Fo3k2v9n_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 $7.40
million, and the equipment has a useful life of 6 years with a residual value of $1,040,000. The company will use straight-
line depreciation. Beacon could expect a production increase of 36,000 units per year and a reduction of 20 percent in
the labor cost per unit.
Current (no
automation)
77,000 units
Proposed
(automation)
113,000 units
Per
Per
Production and sales volume
Unit
Total
Unit
Total
Sales revenue
$ 93
$ ?
$ 93
$ ?
Variable costs.
Direct materials
$ 16
$ 16
Direct labor
25
?
Variable manufacturing overhead
10
Total variable manufacturing costs
51
10
?
Contribution margin
$ 42
?
$ 47
?
Fixed manufacturing costs
$ 1,240,000
$ 2,330,000
Net operating income
?
?
3. Determine the project's payback period. (Round your answer to 2 decimal places.)
Payback period
years
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