Gardeneer Inc. is planning to invest $184,000 in a new garden tool that is expec

Question

Gardeneer Inc. is planning to invest $184,000 in a new garden tool that is expected to generate additional sales of 7,500 units at $38 each. The $184,000 investment includes $54,000 for initial launch-related expenses and $130,000 for equipment that has a 10-year life and a $17,500 residual value. Selling expenses related to the new product are expected to be 6% of sales revenue. The cost to manufacture the product includes the following per-unit costs:


Determine the net cash flows for the first year of the project, years 2–9, and for the last year of the project.

Insert cash outflows in parentheses. For example an outflow of 45,000 would be entered as (45000).

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 $

Explanation / Answer

I think you missed to mention the per unit cost to manufacture. To answer the question I assume as follows :
Direct labor                                           $6.00
Direct Materials                                   $11.75
Variable factory overhead                     $1.80
Fixed factory overhead-depreciation    $1.50
TOTAL                                                $21.05

    
                                       Year 1       Year 2-9     year 10
Initial Investment         ($184,000)

Cash flows
Sales revenue
7,500 x $38                    $285,000      $285,000     $285,000
Selling expenses
$285,000 x 6%              ($17,100)     ($17,100)     ($17,100)
Cost to manufacture
7,500x($21.05-$1.501) ($146,625) ($146,625)    ($146,625)
Net Operating C/Flow     $121,725     $121,275      $121,275
Total For Year 1             ($62,725)   
Total for years 2-9                           $121,275
less : Residual value                                               $17,500
Total for last year                                                $138,775

1Form Total cost to manufacture $21.05, Depreciation expense $1.50 [($130,000 - $17,500) / 10 = $11,250 per year and $11,250 / 7,500 units = $1.50] has been deducted due to depreciation being non cash expense.

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