Answered: Determine cash flows Kauai Tools Inc.…

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 28BEB: Net Present Value Talmage Inc. has just completed development of a new printer. The new product is...

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Determine cash flows

Kauai Tools 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 6,200 units at $44 each. The new manufacturing equipment will cost $114,100 and is expected to have a 10-year life and a $8,700 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:

Line Item Description	Cost
Direct labor	$7.50
Direct materials	24.40
Fixed factory overhead—depreciation	1.70
Variable factory overhead	3.80
Total	$37.40

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 answers to the nearest dollar.

Kauai Tools Inc.Net Cash Flowsblank

Line Item Description	Year 1	Years 2-9	Last Year
Initial investment	$Initial investment
Operating cash flows:
Annual revenues	$Annual revenues	$Annual revenues	$Annual revenues
Selling expenses	Selling expenses	Selling expenses	Selling expenses
Cost to manufacture	Cost to manufacture	Cost to manufacture	Cost to manufacture
Net operating cash flows	$Net operating cash flows	$Net operating cash flows	$Net operating cash flows
Total for Year 1	$Total for Year 1
Total for Years 2–9 (operating cash flow)		$Total for Years 2–9 (operating cash flow)
Residual value			Residual value
Total for last year			$Total for last year

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