f5Required 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 $9.11million, and the equipment has a useful life of 7 years with a residual value of $1,200,000. The company will use straight-line depreciation. Beacon could expect a production increase of 44,000 units per year and a reduction of 20 percent inthe labor cost per unit.Current (noautomation)71,000 unitsProposed(automation)115,000 unitsPerPerProduction and sales volumeUnitTotalUnitTotalSales revenue$ 90$ ?$ 90$ ?Variable costsDirect materials$ 16$ 16Direct labor15?Variable manufacturing overhead9Contribution marginTotal variable manufacturing costsFixed manufacturing costs40གནྡྷ$ 50?$53?Net operating income$ 1,130,000?$ 2,330,000?4. Using a discount rate of 15 percent, calculate the net present value (NPV) of the proposed investment. (Future Value of $1, PresentValue of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Negativeamount should be indicated by a minus sign. Enter the answer in whole dollars.)Net present value

Net present value:Net Present Value (NPV) is a financial metric used to evaluate the profitability…

Answered: Beacon Company is considering…

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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Ac [The following information applies to the questions displayed below.] Beacon Company is considering automating its production facility. The initial investment in automation would be $10.76 million, and the equipment has a useful life of 8 years with a residual value of $1,160,000. The company will use straight-line depreciation. Beacon could expect a production increase of 33,000 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 i Total variable manufacturing costs Contribution margin Fixed manufacturing costs Net operating income Current (no automation) Proposed (automation) 89,000 units 122,000 units Per Per Unit Total Unit $100 $7 $100 Total $ 7 $ 20 $ 20 25 2 9 9 54 $ 46 2 ? $ 51 $ 1,180,000 $ 2,190,000 2 7 Required: 1-a. Complete the following table showing the totals. (Enter your answers in whole dollars, not in millions.) Current (no…
Gemstones Inc. is considering a new production line. The expected economic life of the project is 6 years. The project will generate sales and incur costs annually. Variable cost is 52% of sales. Total annual fixed costs, excluding depreciation, are $353,000. The initial outlay of the project is $1,010,000 and will be depreciated on a straight-line basis to zero at the end of the project. The company's tax rate is 30% and the discount rate is 10.00%. Calculate the NPV break-even level of sales. (Assume that the half-year rule does not apply.) a. $1,425,606 b. $2,241,776 c. $1,575,903 d. $1,275,308 e. $3,103,472
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 $11.45 million, and the equipment has a useful life of 9 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 46,000 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) 87,000 units Net present value Per Unit $92 $19 25 9 53 $39 Total $ ? ? $ 1,100,000 ? Proposed (automation) 133,000 units Per Unit $92 $19 ? 9 ? $44 Total $ ? ? $ 2,330,000 ? 5. Recalculate the NPV using a 8 percent discount rate. (Future Value of $1, Present Value of $1,…
[The following information applies to the questions displayed below.] 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 Variable costs Direct materials Direct labor Variable manufacturing $ 96 $ ? $ 96 $ ? $ 16 $ 16 15 ? 9 9 costs overhead Total variable manufacturing Contribution margin 40 ? $ 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, Present…
Pivot, Inc. is currently valuing a new project that has the average risk of its investment projects. The project requires upfront R&D and marketing expenses of $10 million and a $30 million investment in equipment. The equipment will be obsolete in 3 years and will be depreciated using the straight-line method over that period. For each year over the next 3 years, the project offers annual sales of $100 million, has annual manufacturing costs of $30 million, and annual operating expenses of $10 million. Further, the project requires no net working capital in year 0, and $2.0 million in net working capital in each year from year 1 to year 2 and no net working capital in year 3. Beyond year 3, the project's free cash flows are expected to growth at an annual rate of 1%. Pivot currently has 20 million outstanding shares with its stock price of $30 per share, $320 million in debt, $20 million in excess cash, the cost of debt of 5%, and the cost of equity of 10%, and the corporate tax rate…
A project requires an initial investment in equipment of $760,000 immediately (t=0) and is expected to produce sales revenue of $697, 000 the first year; this revenue will increase by 4.5% per year over the next four years. Manufacturing costs are estimated to be 67% of the sales. The project demand analysis, which was done last year, cost $235,000. The asset can be depreciated on a straight-line basis over five years to a zero salvage value. The corporate tax rate is 36%. The project requires an investment in working capital. Specifically, at the beginning of the project (t=0), $45,000 of working capital is required; thereafter, working capital is projected to be 6.0% of revenue. The investment in working capital will be recovered at the end of the fifth year. At the end of the 5th year, the company plans to sell the equipment for $18,900. To calculate the cost of capital for this project, the firm is going to use the following companies as comparable firms. Beta Debt Equity…
Glow Limited is considering expanding its production capacity with the installation of newequipment that will cost $950 000. This equipment is expected to have a useful life of 8 years,when it will be disposed of at a scrap value of $25 000.Import duties on the equipment would amount to 2% of purchase price. Installation and testingcosts would be $15 000. To support the expanded capacity, net working capital would have to beincreased by $29 000. The new equipment would result in annual net operating cash inflows of$300 000.Glow Limited’s cost of capital is 16% and the tax rate is 25%.A. Compute initial, annual and terminal after-tax cash flows. B. Use the NPV method to advise Happy Limited on the effect that installing the new equipment will have on the value of the firm.
Beacon Company is considering automating its production facility. The initial investment in automation would be $9.23 million, and the equipment has a useful life of 8 years with a residual value of $1,070,000. The company will use straight-line depreciation. Beacon could expect a production increase of 40,000 units per year and a reduction of 20 percent in the labor cost per unit. Production and sales volume Current (no automation) 80,000 units Proposed (automation) 120,000 units Per Unit Total Per Unit Total Sales revenue $ 91 $ ? $ 91 $ ? Variable costs Direct materials $ 17 $ 17 Direct labor 30? Variable manufacturing overhead 9 9 Total variable manufacturing costs 56? Contribution margin $ 35 ? $ 41 ? Fixed manufacturing costs 1,140,000 2,260,000 Net operating income ? ? Required: 3. Determine the project's payback period.
Consider a project to supply Detroit with 27,000 tons of machine screws annually for automobile production. You will need an initial $6,000,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,450,000 and that variable costs should be $275 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $825,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $392 per ton. The engineering department estimates you will need an initial net working capital investment of $580,000. You require a return of 11 percent and face a tax rate of 22 percent on this project. a-1. What is the estimated OCF for this project? (Do not round intermediate calculations. and round your answer to the nearest whole number,…
Consider a project to supply Detroit with 28,000 tons of machine screws annually for automobile production. You will need an initial $5,800,000 investment in threading equipment to get the project started; the project will last for 6 years. The accounting department estimates that annual fixed costs will be $1,400,000 and that variable costs should be $265 per ton; accounting will depreciate the initial fixed asset investment straight-line to zero over the 6-year project life. It also estimates a salvage value of $775,000 after dismantling costs. The marketing department estimates that the automakers will let the contract at a selling price of $380 per ton. The engineering department estimates you will need an initial net working capital investment of $560,000. You require a return of 14 percent and face a tax rate of 25 percent on this project. a-1. What is the estimated OCF for this project? (Do not round intermediate calculations and round your answer to the nearest whole…
Beacon Company is considering automating its production facility. The initial investment in automation would be $7.52 million, and the equipment has a useful life of 6 years with a residual value of $1,100,000. The company will use straight- line depreciation. Beacon could expect a production increase of 47,000 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 Required: 1-a. Complete the following table showing the totals. Current (no automation) 81,000 Proposed (automation) 128,000 units units Per Unit $94 $ 17 30 9 56 $38 Total $ ? ? 1,240,000 ? Per Unit $94 $ 17 ? 9 ? $44 Total $ ? ? 2,200,000 ?
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