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 6,000 units at $48 each. The new manufacturing equipment will cost $117,000 and is expected to have a 10-year life and $9,000 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 Direct materials Fixed factory overhead- depreciation Variable factory overhead $8.2 26.7 1.8 4.1 Total $40.8 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

Explanation / Answer

Out of Eden, Inc. Net Cash Flows Year 1 Year2-9 Last year Initial Investment 117,000 Operating cash flows: Annual revenues 288000 288000 288000 Selling expenses 11520 11520 11520 Cost to manufacture 234000 234000 234000 Net operating cash flows 42480 42480 42480 Total of Year 1 -74,520 Total of Year 2-9 42,480 Residule value 9,000 Total of last year 51,480 * Annual revenues = 6,000 * 48 = 288,000 *Selling expenses = 288,000 * 4% *Cost to manufacture = sales units * (total variable & fixed cost - Depreciation) 6000 * (40.8 - 1.8)

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