1. Calculate Cash Flows Out of Eden, Inc., is planning to invest in new manufact
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Question
1. 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 5,100 units at $40.00 each. The new manufacturing equipment will cost $82,800 and is expected to have a 10-year life and $6,300 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
$
2.
Cash Payback Period
Primera Banco is evaluating two capital investment proposals for a drive-up ATM kiosk, each requiring an investment of $360,000 and each with an eight-year life and expected total net cash flows of $480,000. Location 1 is expected to provide equal annual net cash flows of $60,000, and Location 2 is expected to have the following unequal annual net cash flows:
Determine the cash payback period for both location proposals.
Select12345678Item 2 years
Direct labor $6.80 Direct materials 22.30 Fixed factory overhead-depreciation 1.50 Variable factory overhead 3.40 Total $34.00 Calculate Cash Flows ; of Eden Inc s planning to in est i ne manufacturing equip mert to mo e a ne garden tool The e go den to l is expected to generate additio el nual sales of 5,100 units at $40 00 each. The r lre and $6,300 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue· e cost to manufacture the product includes the following on a per unit ba e manufacturing equip ent will cost S82 800 end is expected to have Direct materials Foxed factory overheod-depreciotion Variable factory overhead $6.80 22.30 1.50 3.40 $34.00 Total 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 dellar Out of Eden, Inc. Net Cash Flows ear 1 Years 2-9 Last Year Initial inrestment Operating cash flows: Annual revenues Seling expenses Cost to manufacture Net operating cash flows Total for Year 1 Total for Years 2-9 Res dual value Total for last yearExplanation / Answer
Answer 1. Out of Eden Inc Net Cash Flows Year 1 Year 2-9 Last Year Intial Investment (82,800) Operating Cash Flows: Annual Revenues 204,000 204,000 204,000 Selling Expenses - 4% of Revenue (8,160) (8,160) (8,160) Cost to Manufacture (165,750) (165,750) (165,750) Net Operating Cash Flows 30,090 30,090 30,090 Total For Year 1 (52,710) Total for Years 2-9 30,090 Residual Value 6,300 Total for last year 36,390 Cost to Manufacture = ($6.80 + $22.30 + $3.40) X 5,100 Units = $165,750 Answer 2 Project 1 Cash Payback Period = $360,000 (Intial Investment) / $60,000 (Net Annual Cash inflow) Cash Payback Period = 6 Years (Approx.) Project 2. Year Cash Inflow Accumulated Net Cash Inflow 1 140,000 140,000 2 104,000 244,000 3 68,000 312,000 4 48,000 360,000 5 42,000 402,000 6 34,000 436,000 7 24,000 460,000 8 20,000 480,000 Cash payback period = 4 Years
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