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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

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.

To determine

Capital investment analysis:

Capital investment analysis is the process by which management plans, evaluates, and controls investments in fixed assets.

Cash flow:

Cash flow is the monetary consideration (return or income) received by the business for its long-term capital investment.

To determine: The net cash flow of NW Incorporation.

Explanation

In this case, the annual revenues and expenses of the NW Incorporation are same in all useful life of asset. In the last year cash flow of investment, re...

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