Question

Determine Cash Flows

Natural Foods 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 6,400 units at $48 each. The new manufacturing equipment will cost $124,800 and is expected to have a 10-year life and a $9,600 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		$8.20
Direct materials		26.70
Fixed factory overhead-depreciation		1.80
Variable factory overhead		4.10
	Total	$40.80

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 answers to the nearest dollar.

Natural Foods 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 (operating cash flow)		$
Residual value
Total for last year			$

Answer 1

ANSWER=

Particular	Year-1	Year 2-9	Year-Last
Initial Investment	-$124800
Opreating Cash Flows:-
Annual Revenues/Sales=(6400 Units x $48 each)	$307200	$307200	$307200
Selling Expenses=(5% of sales)	-$15360	-$15360	-$15360
Cash cost to Manufacturer=[6400 x ($40.80 - $1.80)]	-$249600	-$249600	-$249600
Net Opreating Cash flows:-	$42240	$42240	$42240
Total of Year-1	-$82560
Total of Year 2 to 9		$42240
Residual Value			$9600
Total for last Year			$51840