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 7,400 units at $36 each. The new manufacturing equipment will cost $112,200 and is expected to have a 10-year life and $8,600 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 Direct materials $6.10 20.00 Fixed factory overhead-depreciation 1.40 Variable factory overhead 3.10 Total $30.60 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 SL

Answer 1

Calculate net cash flow

	Year 1	Year 2-9	Last year
Initial investment	-112200
Operating cash flows
Annual revenues	266400	266400	266400
selling expenses	-13320	-13320	-13320
Cost to manufacture	-216080	-216080	-216080
Net operating cash flows	37000	37000	37000
Total for year 1	-75200
Total for years 2-9		296000
Residual value			8600
Total for last year			45600