Out of Eden, Inc., is planning to invest in new manufacturing equipment to make

Question

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 6,400 units at $52.00 each. The new manufacturing equipment will cost $138,600 and is expected to have a 10-year life and $10,600 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 $8.80 Direct materials 28.90 Fixed factory overhead-depreciation 2.00 Variable factory overhead 4.50 Total $44.20

Explanation / Answer

Solution:-

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Out of Eden Inc. Net cash flows Year 1 Year 2-9 Last year Initial investment 138,600 Operating cash flows: Annual revenues 332,800 332,800 332,800 Selling expenses 16,640 16,640 16,640 Cost of manufacturing 270,080 270,080 270,080 Net operating cash flows 46,080 46,080 46,080 Total for year 1 (86,520) Total for years 2-9 46,080 Residual value 10,600 Total for last year 56,680

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