Calculate Cash Flows Out of Eden, Inc., is planning to invest in new manufacturi

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 7,500 units at $54.00 each. The new manufacturing equipment will cost $170,600 and is expected to have a 10-year life and $13,100 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:

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 $9.20 Direct materials 30.00 Fixed factory overhead-depreciation 2.10 Variable factory overhead 4.60 Total $45.90

Explanation / Answer

year 1 2-9 last year Initial investment 170,600 operating cash flow Annual revenue (7500 *54) 405,000 405,000 405,000 selling expense (405,000*.04) -16200 -16200 -16200 cost to manufacture (43.8 * 7500) -328500 -328500 -328500 net operating cash flow 60300 60300 60300 Total for year1 230900 Total for year2-9 60300 Residual value 13100 Total for last year 73400

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