Question

Calculate Cash Flows Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 6,600 units at $50 each. The new manufacturing equipment will cost $135,800 and is expected to have a 10-year life and $10,400 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $8.50 Direct materials 27.80 Fixed factory overhead-depreciation 1.90 Variable factory overhead 4.30 Total $42.50 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar.

Out of Eden, Inc. Net Cash Flows Year 1 Years 2-9 Last Year

Initial investment $

Operating cash flows:

Annual revenues $ $ $

Selling expenses

Cost to manufacture

Net operating cash flows $ $ $

Total for Year 1 $

Total for Years 2-9 $

Residual value

Total for last year $

Answer 1

Solution:

Out of Eden Inc.
Net Cash Flows
Particulars	Year 1	Years 2-9	Last Year
Initial investment	$135,800.00
Operating cash flows:
Annual revenues	$330,000.00	$330,000.00	$330,000.00
Selling Expenses	$16,500.00	$16,500.00	$16,500.00
Cost to manufacture	$267,960.00	$267,960.00	$267,960.00
Net Operating cash flows	$45,540.00	$45,540.00	$45,540.00
Total for year 1	-$90,260.00
Total for Years 2 to 9		$45,540.00
Residual Value			$10,400.00
Total for last year			$55,940.00