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
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