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Beacon Company is considering automating its production facility. The initial investment in automation would be $8.38 million, and the equipment has a useful life of 7 years with a residual value of $1,170,000. The company will use straight-line depreciation. Beacon could expect a production increase of 50,000 units per year and a reduction of 20 percent in the labor cost per unit.

	Current (no automation)			Proposed (automation)
Production and sales volume	84,000 Units			134,000 Units
	Per Unit		Total	Per Unit		Total
Sales revenue	$	99	?	$	99	?
Variable costs
Direct materials	$	19		$	19
Direct labor		25			?
Variable manufacturing overhead		8			8
Total variable manufacturing costs		52			?
Contribution margin	$	47	?	$	52	?
Fixed manufacturing costs			1,240,000			2,210,000
Net Operating income			?			?

2.

value: 10.00 points

Required:
1.a	Complete the following table showing the totals and summarize the difference in the alternatives.

1.b	Does Beacon Company favor automation?
	Yes No

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3.

value: 10.00 points

2.	Determine the project's accounting rate of return. (Round your answer to 2 decimal places.)

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4.

value: 10.00 points

3.	Determine the project's payback period. (Round your answer to 2 decimal places.)

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5.

value: 10.00 points

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.)

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6.

value: 10.00 points

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.)