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 6,700 units at $36 each. The new manufacturing equipment will cost $101,600 and is expected to have a 10-year life and a $7,800 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: Direct labor $6.10 Direct materials 20.00 Fixed factory overhead-depreciation 1.40 Variable factory overhead 3.10 Total $30.60 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 -101,600 v Operating cash flows: Annual revenues 241,200 241,200 241,200 v 12,060 x 195,640 x Selling expenses Cost to manufacture 195,640 x 195,640 X Net operating cash flows -68,100 x Total for Year 1 Total for Years 2-9 (operating cash flow) 33,500 Residual value 7,800 V Tatal for lact unar 25.700 x
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 6,700 units at $36 each. The new manufacturing equipment will cost $101,600 and is expected to have a 10-year life and a $7,800 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: Direct labor $6.10 Direct materials 20.00 Fixed factory overhead-depreciation 1.40 Variable factory overhead 3.10 Total $30.60 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 -101,600 v Operating cash flows: Annual revenues 241,200 241,200 241,200 v 12,060 x 195,640 x Selling expenses Cost to manufacture 195,640 x 195,640 X Net operating cash flows -68,100 x Total for Year 1 Total for Years 2-9 (operating cash flow) 33,500 Residual value 7,800 V Tatal for lact unar 25.700 x
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
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