Out of Eden, Inc., is planning to invest in new manufacturing equipment to make

Question

Out of Eden, 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 5,600 units at $44.00 each. The new manufacturing equipment will cost $103,100 and is expected to have a 10-year life and $7,900 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:

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 answer to the nearest dollar.

Out of Eden, 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 2-9

$  

Residual value

  

Total for last year

$  

Direct labor $7.50 Direct materials 24.40 Fixed factory overhead-depreciation 1.70 Variable factory overhead 3.80 Total $37.40

Explanation / Answer

Out Of Eden Inc. Yearly Additional sales units          5,600 Selling price /unit                44 Total Additional revenue     246,400 Cost of Manufacturing For Cash Flow purpose ignoring depreciation $1.7 per unit as cost to Manufacture Cash Cost to Manufacture/unit=          35.70 Total Cash Manufacture cost     199,920 Out Of Eden Inc. Net Cash Flow Year 1 Year 2-9 per year Year 2-9 total Year 10 Initial Investment (103,100) Opearting Cash Flow Annual revenue     246,400                246,400     1,971,200     246,400 Selling Expenses        (9,856)                  (9,856)         (78,848)        (9,856) Cash Cost to manufacture (199,920)             (199,920) (1,599,360) (199,920) Net Operating Cash Flow        36,624                  36,624         292,992        36,624 Total for Year1     (66,476) Total for Year 2-9         292,992 Residual Value          7,900 Total for Last Year        44,524

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