Determine Cash FlowsNatural 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 5,000 units at $18 each. The new manufacturing equipment will cost $120,000 and is expected to have a 10-year life and a $17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:Direct labor$ 2.50Direct materials3.20Fixed factory overhead—depreciation2.40Variable factory overhead0.90 Total$9.00Determine 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 1Year 2-9Last YearInitial 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 Chapter 26еВookShow Me HowDetermine Cash FlowsNatural 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 5,000 units at $18 each. The new manufacturing equipment will cost $120,000and is expected to have a 10-year life and a $17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:Direct labor2.50Direct materials3.20Fixed factory overhead-depreciation2.40Variable factory overhead0.90Total$9.00Determine 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 thenearest dollar.Natural Foods Inc.Net Cash FlowsYear 1Years 2-9Last YearInitial investment-120,000Operating cash flovs:Annual revenues90,000 V sSelling expenses-2,700 VCost to manufactureNet operating cash flowsTotal for Year 1Total for Years 2-9 (operating cash flow)Residual valueTotal for last yearCheck My WorkNextPrevious

SOLUTION- WE SHOULD NOT CONSIDER FIXED FACTORY OVERHEAD DEPRECIATION IN COMPUTING CASH FLOW BECAUSE…

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 5,000 units at $18 each. The new manufacturing equipment will cost $120,000 and is expected to have a 10-year life and a $17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis: Direct labor $ 2.50 Direct materials 3.20 Fixed factory overhead—depreciation 2.40 Variable factory overhead 0.90 Total $9.00 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use 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 Year 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

Fundamentals of Financial Management (MindTap Course List)

14th Edition

ISBN:9781285867977

Author:Eugene F. Brigham, Joel F. Houston

Publisher:Eugene F. Brigham, Joel F. Houston

Chapter12: Cash Flow Estimation And Risk Analysis

Section: Chapter Questions

Problem 16P: REPLACEMENT CHAIN The Fernandez Company has an opportunity to invest in one of two mutually...

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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 5,000 units at $18 each. The new manufacturing equipment will cost $120,000 and is expected to have a 10-year life and a $17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:

Direct labor	$ 2.50
Direct materials	3.20
Fixed factory overhead—depreciation	2.40
Variable factory overhead	0.90
Total	$9.00

Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use 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	Year 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

Chapter 26
еВook
Show Me How
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 5,000 units at $18 each. The new manufacturing equipment will cost $120,000
and is expected to have a 10-year life and a $17,000 residual value. Selling expenses related to the new product are expected to be 3% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:
Direct labor
2.50
Direct materials
3.20
Fixed factory overhead-depreciation
2.40
Variable factory overhead
0.90
Total
$9.00
Determine the net cash flows for the first year of the project, Years 2-9, and for the last year of the project. Use 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
-120,000
Operating cash flovs:
Annual revenues
90,000 V s
Selling expenses
-2,700 V
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
Check My Work
Next
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