OBJ.2 EX 26-4 Calculate cash flows Nature\'s Way Inc. is planning to invest in n

Question

OBJ.2 EX 26-4 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 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 Direct materials Fixed factory overhead-depreciation Variable factory overhead $ 8.00 22.00 8.40 3.60 $42.00 Total Determine the net cash flows for the first year of the project, Years year of the project. m ine tr rer cah oes fer h fi project, Years 2-9), and for the lst 2-9, and for the last

Explanation / Answer

Year 1 Year 2-9 Last year Cash Outflow        -2,27,000 Cash Inflow Sales (2500 X 60)          1,50,000        1,50,000        1,50,000 Variable Cost (net of Dep)            -84,000          -84,000          -84,000 ($ 42.00- $ 8.40) X 2500 Selling Exp              -7,500             -7,500             -7,500 (5% of Sales) Net Cash Inflow              58,500            58,500            58,500 Sale of Machinery            17,000 Cash Flow        -1,68,500            58,500            75,500

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