Question

Nature’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 8,600 units at $46 each. The new manufacturing equipment will cost $167,600 and is expected to have a 10-year life and $12,800 residual value. Selling expenses related to the new product are expected to be 4% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:Direct labor $ 8.00Direct materials 22.00Fixed factory overhead—depreciation 8.40Variable factory overhead 3.60 Total $42.00Determine 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.Cornucopia Inc.Net Cash Flows Year 1 Years 2-9 Last YearInitial investment $ Operating cash flows: Annual revenues $ $ $Selling expenses Cost to manufacture Net operating cash flows $ $ $Total for Year 1 $ Total for Years 2-9 $ Residual value Total for last year $

Answer 1

Determine the net cash flows for the first year of the project:

• $90,816 - $167,600 = -$76,784

Determine the net cash flows for years 2 - 9 of the project:

• $90,816

Determine the net cash flows for year 10 of the project:

• $90,816 + $12,800 = $130,616

Step-by-step explanation:

additional sales 8,600 units at $46 each = $395,600

required investment $167,600

10 year useful life and $12,800 residual value

selling expenses 4% of total revenue

manufacturing costs per unit:

• Direct labor $8
• Direct materials $22
• Fixed factory depreciation $8.40
• Variable factory overhead $3.60
• Total $42.00

net cash flows:

total revenue $395,600

direct materials -$189,200

direct labor -$68,800

variable overhead -$30,960

selling expenses -$15,824

net cash flow = $90,816