Calculate Cash Flows Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 1,600 units at $75 each. The new manufacturing equipment will cost $257,000 and is expected to have a 10-year life and $17,000 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 $12.00 Direct materials 30.00 Fixed factory overhead—depreciation 15.00 Variable factory overhead 4.50    Total $61.50 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar. Use a minus sign to indicate cash outflows.

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

Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 1,600 units at $75 each. The new manufacturing equipment will cost $257,000 and is expected to have a 10-year life and $17,000 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 $12.00
Direct materials 30.00
Fixed factory overheaddepreciation 15.00
Variable factory overhead 4.50
   Total $61.50

Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar. Use a minus sign to indicate cash outflows.

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