Question

Calculate Cash FlowsNature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 1,600 units at $75 each. The new manufacturing equipment will cost $257,000 and is expected to have a 10-year life and $17,000 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 $12.00Direct materials 30.00Fixed factory overhead—depreciation 15.00Variable factory overhead 4.50 Total $61.50Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar. Use a minus sign to indicate cash outflows.

Answer 1

Net cash flow for year 1 = ($217,400)

Net cash flow for year 2-9 = $39,600

Net cash flow for last year = $56,600

Step-by-step explanation:

Year 1 Year 2-9 Last year

Initial investment -$257,000

Annual revenue $120,000 $120,000 $120,000

Selling expense -$6,000 -$6,000 -$6,000

Cost of manufacture -$74,400 -$74,400 -$74,400

Net operating cash flows $39,600 $39,600 $39,600

Total for year 1 -$217,400

Total for year 2-9 $39,600

Residual value $17,000

Total for last year $56,600