Determine cash flows

Kauai Tools 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 $8,900$ units at $$46$ each. The new manufacturing equipment will cost $$173,500$ and is expected to have a $10-$year life and a $$13,300$ 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:

Line Item Description Cost

Direct labor $$7\mathrm{.}80$

Direct materials $25\mathrm{.}60$

Fixed factory overhead$$depreciation $1\mathrm{.}80$

Variable factory overhead $3\mathrm{.}90$

Total $$39\mathrm{.}10$

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.

Kauai Tools Inc.

Net Cash Flows

blank

Line Item Description Year $1$ Years $2-9$ Last Year

Initial investment $

Initial investment

Operating cash flows:

Annual revenues $

Annual revenues

$

Annual revenues

$

Annual revenues

Selling expenses

Selling expenses

Selling expenses

Selling expenses

Cost to manufacture

Cost to manufacture

Cost to manufacture

Cost to manufacture

Net operating cash flows $

Net operating cash flows

$

Net operating cash flows

$

Net operating cash flows

Total for Year $1$ $

Total for Year $1$

Total for Years $29($operating cash flow$)$ $

Total for Years $29($operating cash flow$)$

Residual value Net present value$$unequal lives

Dakota Mining Company has two competing proposals: a diamond core drill or a hydraulic excavator. Both pieces of equipment have an initial investment of $$732,696.$ The net cash flows estimated for the two proposals are as follows:

Year Net Cash Flow

Diamond Core Drill Net Cash Flow

Hydraulic Excavator

$1$ $$223,000$ $$279,000$

$2198,000259,000$

$3198,000239,000$

$4158,000245,000$

$5120,000$

$6100,000$

$787,000$

$887,000$

The estimated residual value of the diamond core drill at the end of Year $4$ is $$280,000.$

Present Value of $$1$ at Compound Interest Year $6\%10\%12\%15\%20\%$

$10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}833$

$20\mathrm{.}8900\mathrm{.}8260\mathrm{.}7970\mathrm{.}7560\mathrm{.}694$

$30\mathrm{.}8400\mathrm{.}7510\mathrm{.}7120\mathrm{.}6580\mathrm{.}579$

$40\mathrm{.}7920\mathrm{.}6830\mathrm{.}6360\mathrm{.}5720\mathrm{.}482$

$50\mathrm{.}7470\mathrm{.}6210\mathrm{.}5670\mathrm{.}4970\mathrm{.}402$

$60\mathrm{.}7050\mathrm{.}5640\mathrm{.}5070\mathrm{.}4320\mathrm{.}335$

$70\mathrm{.}6650\mathrm{.}5130\mathrm{.}4520\mathrm{.}3760\mathrm{.}279$

$80\mathrm{.}6270\mathrm{.}4670\mathrm{.}4040\mathrm{.}3270\mathrm{.}233$

$90\mathrm{.}5920\mathrm{.}4240\mathrm{.}3610\mathrm{.}2840\mathrm{.}194$

$100\mathrm{.}5580\mathrm{.}3860\mathrm{.}3220\mathrm{.}2470\mathrm{.}162$

Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of $10\%.$ Use the present value table appearing above.

Line Item Description Diamond Core Drill Hydraulic Excavator

Present value of net cash flow total $

fill in the blank $1$

$

fill in the blank $2$

Amount to be invested

fill in the blank $3$

fill in the blank $4$

Net present value $

fill in the blank $5$

$

fill in the blank $6$

Which project should be favored?

Residual value

Total for last year $

Total for last year