Question
Determine Cash Flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is
Determine Cash Flows
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 9,700 units at $54 each. The new manufacturing equipment will cost $220,600 and is expected to have a 10-year life and a $16,900 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 | $9.20 | |
Direct materials | 30.00 | |
Fixed factory overhead-depreciation | 2.10 | |
Variable factory overhead | 4.60 | |
Total | $45.90 |
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 | $ |
Determine Cash Flows 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 9,700 units at $54 each. The new manufacturing equipment will cost $220,600 and is expected to have a 10- year life and a $16,900 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 $9.20 Direct materials 30.00 2.10 Fixed factory overhead-depreciation Variable factory overhead 4.60 Total $45.90 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 answers to the nearest dollar. Natural Foods Inc. Net Cash Flows Year 1 Years 2-9 Last Year Initial investment -220,600 Operating cash flows: Annual revenues 523,800 523,800 Selling expenses -26,190 -209,520 -26,190 Cost to manufacture Net operating cash flows 52,380 Total for Year 1 168,220 Total for Years 2-9 (operating cash flow) Residual value 16,900 Total for last year 69,280
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