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 7,900 units at $30.00 each. The new manufacturing equipment will cost $94,100 and is expected to have a 10-year life and $7,200 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 Direct materials Fixed factory overhead-depreciation Variable factory overhead $5.10 16.70 1.10 2.60 $25.50 Total Hintfs) Hide 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 94,100 Operating cash flows: Annual revenues 237,000 9,480 192,760 237,000s 237,000s Selling expenses 9,480 9,480 Cost to manufacture 192,760 192,760 Net operating cash flows Total for Year 1 Total for Years 2-9 Residual value Total for last year

Explanation / Answer

1) Calculation of Net cash flows for the project :

Total for last year 41,960

Particulars 1st year($) Year 2-9($) Last year($) Initial investment -94,100 Operating cashflows : Annual Revenue 237,000 1,896,000 237,000 Selling expenses -9,480 -75,840 -9,480 Cost to Manufacture -192,760 -1,542,080 -192,760 Net Operating cash flow 34,760 34,760 Total cash flow for Year 1 -59,340 Total cash flow for Year 2-9 278,080 Residual value 7,200

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