Calculate Cash Flows

Daffodil Inc. is planning to invest in manufacturing equipment to make a new garden tool. The new garden tool is expected to generate additional annual sales of 120,000 units at $9 each. The new manufacturing equipment will cost $320,000, have a 10-year life, a residual value of $20,000, and will be depreciated using the straight-line method. Selling expenses related to the new product are expected to be 15% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:

Direct labor		$1.00
Direct materials		3.40
Fixed factory overheaddepreciation		0.25
Variable factory overhead		0.35
	Total	$5.00

a. 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.

			Year 1	Years 2 - 9	Last Year
Operating cash flows:
	Annual revenues		$	$	$
	Selling expenses
	Cost to manufacture
		Net operating cash flows	$	$	$
Initial investment			$
Total for year 1			$
Total for years 2-9				$
	Residual value
Total for last year					$

b. Assume that the operating cash flows occur evenly throughout the year and that the equipment is purchased on January 1, 20Y1. Determine when the cash payback will occur by year, month, and day.