1. Calculate Cash Flows
2. Nature's Way 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 9,000 units at $48 each. The new manufacturing equipment will cost $175,400 and is expected to have a 10-year life and $13,400 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:
3. Direct labor$8.20Direct materials26.70Fixed factory overhead-depreciation1.80Variable factory overhead4.10Total$40.80
4. Determine the net cash flows for the first year of the project, Years 2-9, and for the last year of the project. Use the minus sign to indicate cash outflows. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar.
5. Out of Eden, Inc.Net Cash FlowsYear 1Years 2-9Last YearInitial investment$Operating cash flows:Annual revenues$$$Selling expensesCost to manufactureNet operating cash flows$$$Total for Year 1$Total for Years 2-9$Residual valueTotal for last year$
6. Feedback
8. For Year 1, subtract the amount to be invested from the operating cash flows (annual revenues less selling expenses less cost to manufacture). For Years 2-10, subtract the selling expenses and the costs to manufacture from the annual revenues. For Year 10 only, add the residual value.
9. Learning Objective 2.