Calculate Cash Flows Out of Eden, Inc., is planning to invest in new manufacturi
ID: 2471367 • Letter: C
Question
Calculate Cash Flows
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 9,400 units at $36.00 each. The new manufacturing equipment will cost $142,500 and is expected to have a 10-year life and $10,900 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:
Direct labor $6.10
Direct materials 20.00
Fixed factory overhead-depreciation 1.40
Variable factory overhead 3.10
Total $30.60
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
$
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
$
Explanation / Answer
Out of Eden, Inc.
Net Cash Flows
Year 1
Years 2-9
Last Year
Initial investment
$(142,500)
Operating cash flows:
Annual revenues (9400 units * $36)
$ 338,400
$ 338,400
$ 338,400
Selling expenses ($338400*4%)
$ (13,536)
$ (13,536)
$ (13,536)
Cost to manufacture (9400 Units *($30.10-1.40)
$(269,780)
$(269,780)
$ (269,780)
Net operating cash flows
$ 55,084
$ 55,084
$ 55,084
Total for Year 1 (55084-142500)
$ (87,416)
Total for Years 2-9
$ 55,084
Residual value
$ 10,900
Total for last year (55084+10900)
$ 65,984
Out of Eden, Inc.
Net Cash Flows
Year 1
Years 2-9
Last Year
Initial investment
$(142,500)
Operating cash flows:
Annual revenues (9400 units * $36)
$ 338,400
$ 338,400
$ 338,400
Selling expenses ($338400*4%)
$ (13,536)
$ (13,536)
$ (13,536)
Cost to manufacture (9400 Units *($30.10-1.40)
$(269,780)
$(269,780)
$ (269,780)
Net operating cash flows
$ 55,084
$ 55,084
$ 55,084
Total for Year 1 (55084-142500)
$ (87,416)
Total for Years 2-9
$ 55,084
Residual value
$ 10,900
Total for last year (55084+10900)
$ 65,984
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