! Required information [The following information applies to the questions displayed below.] Beacon Company is consideri

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Required Information The Following Information Applies To The Questions Displayed Below Beacon Company Is Consideri 1 (30.99 KiB) Viewed 11 times

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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 $8.47 million, and the equipment has a useful life of 7 years with a residual value of $1,190,000. The company will use straight- line depreciation. Beacon could expect a production increase of 44,000 units per year and 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 Required: 1-b. Does Beacon Company favor automation? Current (no automation) 85,000 Proposed (automation) 129,000 units units Per Unit $92 $ 17 25 10 52 $ 40 Total ? 1,080,000 Per Unit $ 92 $17 ? 10 2 $ 45 Total $? 2,290,000

Complete the following table showing the totals. Note: Enter your answers in whole dollars, not in millions. 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 Per Unit $ $ Current (no automation) 85000 units $ 92 17 25 10 52 40 Total $ 7,820,000 $ < Req 1A Proposed (automation) 129000 units Per Unit $ $ 3,400,000 $ 1,080,000 2,320,000 Total 92 $ 11,868,000 17 20 10 47 45 $ Req 1B > 5,805,000 2,290,000 3,515,000

Req 1A Req 1B Does Beacon Company favor automation? Does Beacon Company favor automation? Yes

Required: 2. Determine the project's accounting rate of return. Note: Round your answer to 2 decimal places. Answer is complete and correct. 14.11 % Accounting rate of return

Required: 3. Determine the project's payback period. Note: Round your answer to 2 decimal places. Answer is complete and correct. 3.79✔ years Payback period

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, 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. Answer is complete but not entirely correct. Net present value $ 11,539,186

Required: 5. Recalculate the NPV using a 9 percent discount rate. (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. > Answer is complete but not entirely correct. Net present value $ (15,105,790) X