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 6,900 units at $34 each. The new manufacturing equipment will cost $97,100 and is expected to have a 10-year life and $7,400 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 $5.80 Direct materials 18.90 Fixed factory overhead-depreciation 1.30 Variable factory overhead 2.90 $28.90 Total 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 Next

Answer 1

	Year 1	Year 2 - 9	Last Year
Initial investment	- 97,100
Operating cash flows:
Annual revenues	(6,900 units * $34) =234,600	(6,900 units * $34 * 8 years) = 1,876,800	(6,900 units * $34) =234,600
Selling expenses	($234,600 * 4 %) = - 9,384	($1,876,800 * 4 %) = - 75,072	($234,600 * 4 %) = - 9,384
Cost to manufactures	[($5.80 +$18.90 + $2.90) * 6,900 units] = - 190,440	[($5.80 +$18.90 + $2.90) * 6,900 units * 8 years ] = - 1,523,520	[($5.80 +$18.90 + $2.90) * 6,900 units] = - 190,440
Net operating cash flows	34,776	278,208	34,776
Total for Year 1	$- 62,324
Total for Year 2-9		$278,208
Residual value			7,400
Total for last year			$42,176