4.Calculate Cash Flows Nature\'s Way Inc. is planning to invest in new manufactu

Question

4.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 2,500 units at $60 each. The new manufacturing equipment will cost $227,000 and is expected to have a 10-year life and $17,000 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: Direct labor $ 8.00 Direct materials 22.00 Fixed factory overhead—depreciation 8.40 Variable factory overhead 3.60 Total $42.00 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar. Cornucopia 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 $

Explanation / Answer

Solution-

*Residual value will be taken in cash flow if its sold.

Detail Units/calculation cost per unit Total Additional annual sales 2500 60    150,000.00 Depreciation Cost-residual value/life 227000-17000/10      21,000.00 Selling exp. 5% of sales 5%*60 2500 3        7,500.00 Direct labor 2500 8      20,000.00 Direct Material 2500 22      55,000.00 Fixed factory overhead—depreciation 2500 8.4      21,000.00 Variable factory overhead 2500 3.6        9,000.00 42    105,000.00

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