Maurice Tutor

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Category > Management Posted 23 Jan 2018 My Price 10.00

Soldrum Company

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.

 

  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  
 
 
 
Total variable manufacturing costs   44     ?  
Contribution margin $ 50 ? $ 54 ?
Fixed manufacturing costs     1,210,000     2,200,000
     
   
Net income     ?     ?
     
   

 


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    
 
   
   
Total variable manufacturing costs   44            
Contribution margin $ 50     $ 54    
Fixed manufacturing costs       1,210,000       2,200,000
     
   
Net income     $       $  
     
   

 

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 your response.)

 

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 whole dollar amount. Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

 

Net present value $

 

Worksheet Difficulty: Hard  



5. value:
10.00 points

Requirement 5:

Recalculate the NPV using a 8% discount rate. (Round your intermediate calculations to 4 decimal places and final answer to the nearest whole dollar amount. Omit the "$" sign in your response.)

 

Net present value $


rev: 04_11_2012

Answers

Maurice Tutor
(5)
Status NEW Posted 23 Jan 2018 10:01 PM My Price 10.00

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