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 2,500 units at $60 each. The new manufacturing equipment will cost $227,000 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 $ 8.00 Direct materials 22.00 Fixed factory overhead—depreciation 8.40 Variable factory overhead 3.60 Total $42.00 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project.
Calculate Cash Flows
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 2,500 units at $60 each. The new manufacturing equipment will cost $227,000 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 | $ 8.00 |
| Direct materials | 22.00 |
| Fixed factory overhead—depreciation | 8.40 |
| Variable factory overhead | 3.60 |
| Total | $42.00 |
Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use a minus sign to indicate
last year
| Year 1 | years 2-9 | ||
| Initial 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 | $ |
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