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 5,900 units at $44 each. The new manufacturing equipment will cost $108,600 and is expected to have a 10-year life and a $8,300 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 $7.50 Direct materials 24.40 Fixed factory overhead-depreciation 1.70 Variable factory overhead 3.80 Total $37.40 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

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 5,900 units at $44 each. The new manufacturing equipment will cost $108,600 and is expected to have a 10-year life and a $8,300 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 $7.50 Direct materials 24.40 Fixed factory overhead-depreciation 1.70 Variable factory overhead 3.80 Total $37.40 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Steele's Enterprises has purchased a new machine tool which will allow the company to improve the efficiency of its operations. On an annual basis, the machine will produce 19,000 units with an expected selling price of $23, prime costs of $10 per unit, and a fixed cost allocation of $2 per unit. Annual depreciation on the machine is $13,000, and the tax rate of the company is 32%. What is the annual cash flow generated from the new machine? A. $146,280 B. $159,120 C. $172,120 D. $133,280
Firm Z has invested $4 million in marketing campaign to assess the demand for the product Minish. This product will be in the market next year and will last five years. Revenues are projected to be $50 million per year along with expenses of $20 million. The firm spends $15 million immediately on equipment that will be depreciated using MACRS depreciation to zero. Additionally, it will use some fully depreciated existing equipment that has a market value of $4 million. Finally, Minish will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). But, receivables are expected to account for 15% of annual sales. Payables are expected to be 15% of the annual cost of goods sold (COGS) between year 1 and year 4. All accounts payables and receivables will be settled at the end of year 5. Based on this information and WACC in the first part of the question, find the NPV of the project. Identify the IRR of the…
Compute the present value, P, for the following cash flows. You supervise an aging production line that constantly needs maintenance and new parts. Last month you spent $25,000 replacing a failed controller. Should the following plan be accepted if the interest rate is 15%? The net installed cost of the new line to replace the old line is $600,000 with a useful life of six years. In the first year its operating cost will be $100,000, and it will generate annual revenues of $300,000. Each year the operating cost will increase by $5000 and the revenues will fall by $15,000. After six years the equipment will have a value of $100,000 in the next re-building of the line.
GeoSourcex is considering opening a new titanium mine. Once in operation, the mine is expected to produce positive net cash flows in perpetuity starting 3 years from now at $19.5 million per year but declining at a constant rate of 1.8% per year. The costs of getting the mine operational include an immediate payment of $110.0 million to purchase the land and acquire the mineral rights, plus other start -up costs of $10.0 million per year for three years starting in one year. If the project's cost of capital is 10.2% per year (compounded annually) what is the Net Present Value of this new mine?
Carson Trucking is considering whether to expand its regional service center in Moab, Utah. The expansion will require the expenditure of $10,000,000 on new service equipment and will generate annual net cash inflows by reducing operating costs by $2,500,000 per year for each of the next eight years. In year 8, the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1 million. Thus, in Year 8 the investment cash inflow will total $3,500,000. Calculate the project NPV using each of the following discount rates: A. 9 percent B. 11 percent C. 13 percent D. 15 percent in excel
Sun Brite has a new pair of sunglasses it is evaluating. The company expects to sell 5, 700 pairs of sunglasses at a price of $ 152 each and a variable cost of $104 each. The equipment necessary for the project will cost $300,000 and will be depreciated on a straight-line basis over the 9-year life of the project. Fixed costs are $180,000 per year and the tax rate is 21 percent. How sensitive is the operating cash flow to a $1 increase in variable costs per pairs of sunglasses? Multiple Choice -$4,117 -S3, 335 -$4, 503 S3, 705 $3,335
Management of Wildhorse, Inc., is considering switching to a new production technology. The cost of the required equipment will be $4,000,000. The discount rate is 11 percent. The cash flows that management expects the new technology to generate are as follows. Years 1-2 3-5 6-9 CF 0 $750,000 $1,450,000 a. Compute the payback and discounted payback periods for the project. (Round answers to 2 decimal places, e.g. 15.25.) The payback for the project is The NPV of the project is $ years, and the discounted payback period is b. What is the NPV for the project? Should the firm go ahead with the project? (Enter negative amounts using negative sign e.g. -45.25. Do not round discount factors. Round intermediate calculations to O decimal places, e.g. 1,525 and final answer to O decimal places, e.g. 5,125.) The IRR of the project is , and using the NPV rule the project should be c. What is the IRR, and what would be the decision based on the IRR? (Round answer to 3 decimal places, e.g.…
Carson Trucking is considering whether to expand its regional service center in Mohab, UT. The expansion requires the expenditure of $10,500,000 on new service equipment and would generate annual net cash inflows from reduced costs of operations equal to $2,000,000 per year for each of the next 9 years. In year 9 the firm will also get back a cash flow equal to the salvage value of the equipment, which is valued at $1.2 million. Thus, in year 9 the investment cash inflow totals $3,200,000. Calculate the project's NPV using a discount rate of 10%. If the discount rate is 10%, then the project's NPV is $____________
A Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project: eBook Sales revenues $10 million Operating costs 8 million Interest expense 3 million The company has a 25% tax rate, and its WACC is 12%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. a. What is the project's operating cash flow for the first year (t 1)? Round your answer to the nearest dollar. b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar. The firm's OCF would now be $
The Pan American Bottling Company is considering the purchase of a new machine that would increase the speed of bottling and save money. The net cost of this machine is $57,000. The annual cash flows have the following projections. Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. Year 1 2 3 4 5 Cash Flow $ 22,000 24,000 26,000 32,000 14,000 a. If the cost of capital is 11 percent, what is the net present value of selecting a new machine? Note: Do not round intermediate calculations and round your final answer to 2 decimal places. Net present value b. What is the internal rate of return? Note: Do not round intermediate calculations, Enter your answer as a percent rounded to 2 decimal places. Intemal rate of return %
Determine cash flows Kauai Tools 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 9,300 units at $30 each. The new manufacturing equipment will cost $110,800 and is expected to have a 10-year life and a $8,500 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 Direct materials Fixed factory overhead-depreciation Variable factory overhead Total 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. Kauai Tools Inc. Net Cash Flows Line Item Description Initial investment Operating cash flows: $5.10 16.70 1.10 2.60 $25.50 Year 1 Years…
Colsen Communications is trying to estimate the first-year cash flow (at Year 1) for a proposed project. The assets required for the project were fully depreciated at the time of purchase. The financial staff has collected the following information on the project: Sales revenues $20 million Operating costs 16 million Interest expense 2 million The company has a 25% tax rate, and its WACC is 13%. Write out your answers completely. For example, 13 million should be entered as 13,000,000. What is the project's operating cash flow for the first year (t = 1)? Round your answer to the nearest dollar.$ If this project would cannibalize other projects by $1.5 million of cash flow before taxes per year, how would this change your answer to part a? Round your answer to the nearest dollar.The firm's OCF would now be $ .