12.1.2

The following data are accumulated by Watershed Inc. in evaluating two competing capital investment proposals:

	Project A		Project Z
Amount of investment	$76,000			$40,000
Useful life	4 years			7 years
Estimated residual value	0			0
Estimated total income over the useful life	$10,640			$15,400

Determine the expected average rate of return for each project. Round your answers to one decimal place.

Project A	___%
Project Z	___%

Natural Foods 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 7,900 units at $52 each. The new manufacturing equipment will cost $171,100 and is expected to have a 10-year life and a $13,100 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:

Direct labor		$8.80
Direct materials		28.90
Fixed factory overhead-depreciation		2.00
Variable factory overhead		4.50
	Total	$44.20

Determine the net cash flows for the first year of the project, Years 29, 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 answers to the nearest dollar.

Natural Foods 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 29 (operating cash flow)		$___
Residual value			___
Total for last year			$___