HiTech Inc. is investing in a new production line to manufacture their newest high volume consumer product. Design costs for the past three years, leading up to production, have been $0.75 million per year. Today production machinery totaling $3.65 million is being purchased to equip the new line. Operating and maintenance expenses will total $50,000 per year, and materials and overhead costs will be $1.75 million annually. The new line will operate for 7 years, at which time equipment will be sold at 10% of purchase price. Revenue from the new product is expected to be $2.0 million the first year, increasing by $0.50 million per year for the next 4 years, then decreasing by $0.75 million in years 6 and 7. HiTech has asked you to create a cash flow table and diagram.
HiTech Inc. is investing in a new production line to manufacture their newest high volume consumer product. Design costs for the past three years, leading up to production, have been $0.75 million per year. Today production machinery totaling $3.65 million is being purchased to equip the new line. Operating and maintenance expenses will total $50,000 per year, and materials and overhead costs will be $1.75 million annually. The new line will operate for 7 years, at which time equipment will be sold at 10% of purchase price. Revenue from the new product is expected to be $2.0 million the first year, increasing by $0.50 million per year for the next 4 years, then decreasing by $0.75 million in years 6 and 7. HiTech has asked you to create a cash flow table and diagram.
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