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 9,000 units at $42.00 each. The new manufacturing equipment will cost $156,000 and is expected to have a 10-year life and $12,000 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:

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 $7.10 Direct materials 23.40 Fixed factory overhead-depreciation 1.60 Variable factory overhead 3.60 Total $35.70

Explanation / Answer

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.

Year 1 Year 2-9 Last year Initital investment (156000) Operating cash flow Annual revenues 378000 378000 378000 Selling expenses (18900) (18900) (18900) Cost of manufacture (306900) (306900) (306900) Net operating cash flows 52200 52200 52200 Total for year 1 (103800) Total for year 2-9 417600 Residual value 12000 Total for last year 64200

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