Determine Cash Flows Natural Foods 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 8,700 units at $50 each. The new manufacturing equipment will cost $179,000 and is expected to have a 10-year life and a $13,700 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 $8.50 Direct materials 27.80 Fixed factory overhead-depreciation 1.90 Variable factory overhead 4.30 Total $42.50 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. Natural Foods 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 (operating cash flow) $ Residual value Total for last year $

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 4E: Determine cash flows Natural Foods Inc. is planning to invest in new manufacturing equipment to make...

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Determine Cash Flows

Natural Foods 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 8,700 units at $50 each. The new manufacturing equipment will cost $179,000 and is expected to have a 10-year life and a $13,700 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	$8.50
Direct materials	27.80
Fixed factory overhead-depreciation	1.90
Variable factory overhead	4.30
	Total	$42.50

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.

Natural Foods 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 (operating cash flow)		$
Residual value
Total for last year			$

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