12.2.7

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			$___

Natural Foods Inc. announced a $1,037,070 million expansion of lodging properties, ski lifts, and terrain in Park City, Utah. Assume that this investment is estimated to produce $167,000 million in equal annual cash flows for each of the first eight years of the project life.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Determine the expected internal rate of return of this project for eight years, using the present value of an annuity of $1 table above. ___$