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Beacon Company is considering automating its production facility. The initial investment in automation would be $$10\mathrm{.}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.

Using a discount rate of $15$ 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. Negative

amount should be indicated by a minus sign. Enter the answer in whole dollars.$)$Beacon Company is considering automating its production facility. The initial investment in automation would be $$10\mathrm{.}31$ million, and the equipment has a useful life of $8$ years with a residual value of $$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$)$ Proposed $($automation$)$

$82,000$ units $125,000$ units

Production and sales volume Per Unit Total Per Unit Total

Sales revenue $ $96$ $ $?$ $ $96$ $ $?$

Variable costs

Direct materials $ $16$ $ $16$

Direct labor $15?$

Variable manufacturing overhead $99$

Total variable manufacturing costs $40?$

Contribution margin $ $56?$ $ $59?$

Fixed manufacturing costs $ $1,240,000$ $ $2,330,000$

Net operating income $??$

$4.$ Using a discount rate of $15$ 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. Negative amount should be indicated by a minus sign. Enter the answer in whole dollars.$)$

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