vnt 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 9,100 units at $44 each. The new manufacturingequipment will cost $167,500 and is expected to have a 10-year life and a $12,800 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. The cost to manufacture the productincludes the following on a per-unit basis:Direct laborDirect materialsFixed factory overhead-depreciationVariable factory overheadTotal$7.5024.401.703.80$37.40Determine 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 FlowsLine Item DescriptionInitial investmentOperating cash flows:Annual revenuesYear 1 Years 2-9 Last YearSelling expensesCost to manufactureNet operating cash flowsTotal for Year 1Total for Years 2-9 (operating cash flow)Residual valueTotal for last yearA

Key Calculations: 1. Annual Revenues: 9,100×44=400,4002. Selling Expenses:3. Cost to Manufacture:4.…

Answered: Kauai Tools Inc. is planning to invest…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 14P

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Swifty Industries is considering the purchase of new equipment costing $432,000 to replace existing equipment that will be sold for $64,800. The new equipment is expected to have a $72,000 salvage value at the end of its 1-year life. During the period of its use, the equipment will allow the company to produce and sell an additional 10,800 units annually at a sales price of $7 per unit. Those units will have a variable cost of $4 per unit. The company will also incur an additional $32,400 in annual fixed costs.Click here to view the factor table.(a) Calculate the net present value of the proposed equipment purchase. Assume that Swifty uses a 4% discount rate. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971. Enter negative amount using a negative sign preceding the number e.g. -59,992 or parentheses e.g. (59,992).) Net present value $ (b) Do you recommend that Swifty Industries…

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