Out of Eden, Inc., is planning to invest in new manufacturing equipment to make
ID: 2455407 • Letter: O
Question
Out of Eden, 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 8,000 units at $38.00 each. The new manufacturing equipment will cost $130,000 and is expected to have a 10-year life and $10,000 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:
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
$
Direct labor $6.50 Direct materials 21.00 Fixed factory overhead-depreciation 1.50 Variable factory overhead 3.30 Total $32.30Explanation / Answer
Statement showing Cash flows Particulars Year 1 Year 2-9 Year 10 Initial Investment (130,000.00) Operating Cash Flows : Annual Revenues (8000*38) 304,000.00 304,000.00 304,000.00 Selling Expenses (15,200.00) (15,200.00) (15,200.00) Costs to Manufacture (8000*(6.50+21+3.3) (246,400.00) (246,400.00) (246,400.00) Net operating Cash flows 42,400.00 42,400.00 42,400.00 Total for Year 1 (87,600.00) Total for Year 2-9 42,400.00 Residual Value 10,000.00 Total for Last Year 52,400.00
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