Beacon Company is considering automating its production facility. The initial investment in automation would be $9.11 million, and the equipment has a useful life of 7 years with a residual value of $1,200,000. The company will use straight- line depreciation. Beacon could expect a production increase of 44,000 units per year and a reduction of 20 percent in the labor cost per unit. Proposed (automation) 115,000 units Current (no automation) 71,000 units Per Per Production and sales volume Unit Total Unit Total Sales revenue $90 $ ? $90 $ ? Variable costs Direct materials $16 $16 Direct labor 15 ? Variable manufacturing overhead 9 9 Total variable manufacturing costs 40 Contribution margin $50 Fixed manufacturing costs Net operating income ? $ 1,130,000 ? ? $53 ? $2,330,000 ? ing a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1 of $1 Future Value Annuity of $1 Present Value Annuity of $11 (Use appropriate factor/s) from the tables provided
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.11 million, and the equipment has a useful life of 7 years with a residual value of $1,200,000. The company will use straight- line depreciation. Beacon could expect a production increase of 44,000 units per year and a reduction of 20 percent in the labor cost per unit. Proposed (automation) 115,000 units Current (no automation) 71,000 units Per Per Production and sales volume Unit Total Unit Total Sales revenue $90 $ ? $90 $ ? Variable costs Direct materials $16 $16 Direct labor 15 ? Variable manufacturing overhead 9 9 Total variable manufacturing costs 40 Contribution margin $50 Fixed manufacturing costs Net operating income ? $ 1,130,000 ? ? $53 ? $2,330,000 ? ing a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1 of $1 Future Value Annuity of $1 Present Value Annuity of $11 (Use appropriate factor/s) from the tables provided
Financial Management: Theory & Practice
16th Edition
ISBN:9781337909730
Author:Brigham
Publisher:Brigham
Chapter11: Cash Flow Estimation And Risk Analysis
Section: Chapter Questions
Problem 1P: Talbot Industries is considering launching a new product. The new manufacturing equipment will cost...
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