Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue $ 96 $ ? $ 96 $ ? Variable costs Direct materials $ 16 $ 16 Direct labor 15 ? Variable manufacturing 9 9 overhead Total variable manufacturing costs 40 ? Contribution margin $ 56 ? $ 59 ? Fixed manufacturing costs $ 1,240,000 $ 2,330,000 Net operating income ? ? 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Presen 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.) Net present value
Beacon Company is considering automating its production facility. The initial investment in automation would be $10.31 million, and the equipment has a useful life of 8 years with a residual value of $1,030,000. The company will use straight- line depreciation. Beacon could expect a production increase of 43,000 units per year and a reduction of 20 percent in the labor cost per unit. Current (no automation) 82,000 units Proposed (automation) 125,000 units Production and sales volume Per Unit Per Total Unit Total Sales revenue $ 96 $ ? $ 96 $ ? Variable costs Direct materials $ 16 $ 16 Direct labor 15 ? Variable manufacturing 9 9 overhead Total variable manufacturing costs 40 ? Contribution margin $ 56 ? $ 59 ? Fixed manufacturing costs $ 1,240,000 $ 2,330,000 Net operating income ? ? 5. Recalculate the NPV using a 10 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Presen 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.) Net present value
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 18P
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