Soldrum Company is considering automating its production facility. The initial investment in automation would be $13.10 million, and the equipment has a useful
life of 10 years with a residual value of $1.10 million. The company will use straight-line depreciation. Soldrum could expect a production increase of 33,000
units per year and a reduction of 20 percent in the labor cost per unit.
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Current (no automation) |
Proposed (automation) |
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| Production and sales volume | 72,000 units | 105,000 units | ||||
| Per Unit | Total | Per Unit | Total | |||
| Sales revenue | $ | 94 | ? | $ | 94 | ? |
| Variable costs | ||||||
| Direct materials | $ | 15 | $ | 15 | ||
| Direct labor | 20 | ? | ||||
| Variable manufacturing overhead | 9 | 9 | ||||
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| Total variable manufacturing costs | 44 | ? | ||||
| Contribution margin | $ | 50 | ? | $ | 54 | ? |
| Fixed manufacturing costs | 1,210,000 | 2,200,000 | ||||
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| Net income | ? | ? | ||||
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rev: 04_11_2012
1.
value:
10.00 points
| Requirement 1: |
|
Complete the preceding table showing the totals. (Omit the “$” sign in your response.) |
|
Current (no automation) |
Proposed (automation) |
|||||||
| Production and sales volume | 72,000 units | 105,000 units | ||||||
| Per Unit | Total | Per Unit | Total | |||||
| Sales revenue | $ | 94 | $ | $ | 94 | $ | ||
| Variable costs | ||||||||
| Direct materials | $ | 15 | $ | 15 | ||||
| Direct labor | 20 | |||||||
| Variable manufacturing overhead | 9 | 9 | ||||||
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|
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| Total variable manufacturing costs | 44 | |||||||
| Contribution margin | $ | 50 | $ | 54 | ||||
| Fixed manufacturing costs | 1,210,000 | 2,200,000 | ||||||
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| Net income | $ | $ | ||||||
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| Worksheet | Difficulty: Hard |
2.
value:
10.00 points
| Requirement 2: |
|
Determine the project’s accounting rate of return. (Round your answer to 2 decimal places. Omit the “%” sign in |
| Accounting rate of return | % |
| Worksheet | Difficulty: Hard |
3.
value:
10.00 points
| Requirement 3: |
| Determine the project’s payback period. (Round your answer to 2 decimal places.) |
| Payback period | years |
4.
value:
10.00 points
| Requirement 4: |
|
Using a discount rate of 13 percent, calculate the net present value (NPV) of the proposed investment. (Round your intermediate calculations to 4 decimal places and final answer to the nearest |
| Net present value | $ |
| Worksheet | Difficulty: Hard |
5.
value:
10.00 points
| Requirement 5: |
|
Recalculate the NPV using a 8% discount rate. (Round your intermediate |
| Net present value | $ |
rev: 04_11_2012
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