Calculate Cash Flows Out of Eden, Inc., is planning to invest in new manufacturi
ID: 2580516 • 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 8,600 units at $48.00 each. The new manufacturing equipment will cost $167,600 and is expected to have a 10-year life and $12,800 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 $8.20 Direct materials 26.70 Fixed factory overhead-depreciation 1.80 Variable factory overhead 4.10 Total $40.80Explanation / Answer
Out of Eden, Inc.
Net Cash Flows
Year 1
Years 2-9
Last Year
Initial investment
$ 167,600
Operating cash flows:
Annual revenues
$ 412,800
(8600×$48)
$ 412,800
$ 412,800
Selling expenses
$16,512
(412800×4%)
$16,512
$16,512
Cost to manufacture
$335,400
(8600×(40.80-1.80)
$335,400
$335,400
Net operating cash flows
$ 60,888
$60,888
$ 60,888
Total for Year 1
$ (106,712)
Total for Years 2-9
$ 60,888
Residual value
$12,800
Total for last year
$ 48,088
Out of Eden, Inc.
Net Cash Flows
Year 1
Years 2-9
Last Year
Initial investment
$ 167,600
Operating cash flows:
Annual revenues
$ 412,800
(8600×$48)
$ 412,800
$ 412,800
Selling expenses
$16,512
(412800×4%)
$16,512
$16,512
Cost to manufacture
$335,400
(8600×(40.80-1.80)
$335,400
$335,400
Net operating cash flows
$ 60,888
$60,888
$ 60,888
Total for Year 1
$ (106,712)
Total for Years 2-9
$ 60,888
Residual value
$12,800
Total for last year
$ 48,088
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