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 6,200units at $32 each. The new manufacturing equipment will cost $80,600 and is expected to have a 10-year life and a $6,200 residual value. Selling expenses related to the newproduct are expected to be 5% of sales revenue. The cost to manufacture the product includes the following on a per-unit basis:Direct labor$5.40Direct materials17.90Fixed factory overhead-depreciationVariable factory overheadTotalDetermine 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 yourintermediate calculations but, if required, round your final answers to the nearest dollar.Initial investmentOperating cash flows:Annual revenuesSelling expensesCost to manufacture1.202.70$27.20Natural Foods Inc.Net Cash FlowsNet operating cash flowsTotal for Year 1Total for Years 2-9 (operating cash flow)Residual valueTotal for last yearYear 1Years 2-9Last Year0000 QQ000 00

In Net cash flow, the inflow and outflow of cash is recorded. As depreciation is a non cash expense…

epreciation 3 1.20 Natural Foods Inc. Net Cash Flows 2.70 $27.20 lows 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 but, if required, round your final answers to the nearest dollar. Your

epreciation 3 1.20 Natural Foods Inc. Net Cash Flows 2.70 $27.20 lows 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 but, if required, round your final answers to the nearest dollar. Your

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

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 6,200
units at $32 each. The new manufacturing equipment will cost $80,600 and is expected to have a 10-year life and a $6,200 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
$5.40
Direct materials
17.90
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.
Initial investment
Operating cash flows:
Annual revenues
Selling expenses
Cost to manufacture
1.20
2.70
$27.20
Natural Foods Inc.
Net Cash Flows
Net operating cash flows
Total for Year 1
Total for Years 2-9 (operating cash flow)
Residual value
Total for last year
Year 1
Years 2-9
Last Year
0000 Q
Q000 00

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