Question

Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 9,500 units at $50 each. The new manufacturing equipment will cost $195,500 and is expected to have a 10-year life and $15,000 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:

Direct labor		$8.5
Direct materials		27.8
Fixed factory overhead-depreciation		1.9
Variable factory overhead		4.3
	Total	$42.5

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.

Nature’s Way 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

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.

Nature’s Way Inc.
Net Cash Flows
	Year 1	Years 2-9	Last Year
Initial investment	-195500
Operating cash flows:
Annual revenues	475000	475000	475000
Selling expenses	-19000	-19000	-19000
Cost to manufacture	-385700	-385700	-385700
Net operating cash flows	70300	70300	70300
Total for Year 1	-125200
Total for Years 2-9		562400
Residual value			15000
Total for last year			85300