Question

Calculate Cash Flows

Out of Eden, 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 7,500 units at $50 each. The new manufacturing equipment will cost $154,300 and is expected to have a 10-year life and $11,800 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 | $8.5 | |

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.

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 | $ |

Check My Work

Answer #1

Out of Eden, Inc. | ||||

Net Cash Flows | ||||

Year 1 | Years 2-9 | Last Year | ||

Initial investment | -154300 | |||

Operating cash flows: | ||||

Annual revenues | 375000 | 3000000 | 375000 | |

Selling expenses | -18750 | -150000 | -18750 | |

Cost to manufacture | -318750 | -2550000 | -318750 | |

Net operating cash flows | 37500 | 300000 | 37500 | |

Total for Year 1 | -116800 | |||

Total for Years 2-9 | 300000 | |||

Residual value | 11800 | |||

Total for last year | 49300 | |||

Total Cash flow in 10 years = | -116800+300000+49300 | |||

232500 | ||||

Note- | ||||

Best effort have been made to answer the question correctly, in case of any discrepencies kindly comment and i will try to resolve it as soon as possible. | ||||

Please provide positive feedback. |

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