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

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 5,700 units at $30.00 each. The new manufacturing equipment will cost $67,900 and is expected to have a 10-year life and $5,200 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 $5.10 16.70 1.10 2.60 $25.50 Total

Explanation / Answer

Calculate annual cash flow :

Operating cash flows :

Year 1 Year 2-9 Last year Initial investment -67900

Operating cash flows :

Annual revenue 171000 171000 171000 Selling expense -8550 -8550 -8550 Cost of manufacture -139080 -139080 -139080 Net operating cash flow 23370 23370 23370 Total for year 1 -44530 Total for year 2-9 186960 Residual value 5200 Total for last year 28570

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