Question

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 7,800 units at $50 each. The new manufacturing equipment will cost $160,500 and is expected to have a 10-year life and $12,300 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		$8.50
Direct materials		27.80
Fixed factory overhead-depreciation		1.90
Variable factory overhead		4.30
	Total	$42.50

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			$

Answer 1

Out of Eden, Inc.
Net Cash Flows
	Year 1	Years 2-9	Last Year
Initial investment	-160500
Operating cash flows:
Annual revenues	390000	3120000	390000
Selling expenses (5% of sales revenue)	-19500	-156000	-19500
Cost to manufacture	-331500	-2652000	-331500
Net operating cash flows
Total for Year 1	39000
Total for Years 2-9		312000
Residual value			12300
Total for last year			51300

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