[The following information applies to the questions displayed below.) Beacon Company is considering automating its production facility. The initial investment in automation would be $11.38 million, and the equipment has a useful life of 9 years with a residual value of $1,120,000. 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 Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 79,000 units Net present value Per Unit $ 98 $ 15 30 10 55 $ 43 Total $7 1,240,000 Proposed (automation) 115,eee units. Per Unit s 98 $ 15 7 10 7 $49 Total $7 2,210, eee Required: . Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1. Present Value of $1. Euture 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 answ in whole dollars.
[The following information applies to the questions displayed below.) Beacon Company is considering automating its production facility. The initial investment in automation would be $11.38 million, and the equipment has a useful life of 9 years with a residual value of $1,120,000. 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 Variable costs Direct materials Direct labor Variable manufacturing overhead Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) 79,000 units Net present value Per Unit $ 98 $ 15 30 10 55 $ 43 Total $7 1,240,000 Proposed (automation) 115,eee units. Per Unit s 98 $ 15 7 10 7 $49 Total $7 2,210, eee Required: . Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1. Present Value of $1. Euture 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 answ 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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[The following information applies to the questions displayed below.)
Beacon Company is considering automating its production facility. The initial investment in automation would be $11.38
million, and the equipment has a useful life of 9 years with a residual value of $1,120,000. 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
Variable costs
Direct materials
Direct labor
Variable manufacturing overhead
Total variable manufacturing costs
Contribution margin.
Fixed manufacturing costs
Net operating income
Current (no automation)
79,000 units
Per Uniti
$98
Net present value
$15
30
20
55
$ 43
Total
$7
1,240,000
Proposed (automation)
115,eee units
Per Unit
5.98
$15
7
10
17
$49
Total
$7
2,210,000
Required:
4. Using a discount rate of 14 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1. Present
Value of $1. Euture 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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