Beacon Company is considering automating its production facility. The initial investment in automation would be $6.23 million, and the equipment has a useful life of 5 years with a residual value of $1,030,000. 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.

	Current (no automation)			Proposed (automation)
Production and sales volume	90,000 Units			137,000 Units
	Per Unit		Total	Per Unit		Total
Sales revenue	$	92	?	$	92	?
Variable costs
Direct materials	$	16		$	16
Direct labor		20			?
Variable manufacturing overhead		12			12
Total variable manufacturing costs		48			?
Contribution margin	$	44	?	$	48	?
Fixed manufacturing costs			1,140,000			2,330,000
Net Operating income			?			?

Complete the following table showing the totals and summarize the difference in the alternatives.

Current (no automation) Proposed (automation) Production and Sales Volume 90000 Units 137000 Units Per Unit Total Per Unit Total Sales Revenue $92 $8,280,000 $92 $12,604,000 Variable Costs: Direct Materials $16 $16 Direct Labor 20 16 Variable Manufacturing Overhead 12 12 Total Variable Manufacturing Costs 48 44 Contribution Margin $44 3,960,000 $48 6,576,000 Fixed Manufacturing Costs $1,140,000 2,330,000 Net Operating Income

2.

Determine the project's accounting rate of return. (Round your answer to 2 decimal places.) Accounting rate of return _________% 3. Determine the project's payback period. (Round your answer to 2 decimal places.) _________ 4. 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.) (Use appropriate factor(s) from the tables provided.) Net present value_________ 5. Recalculate the NPV using a 9% discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided.) Net present Value________