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 9,900 units at $54 each. The ne manufacturing equipment will cost $225,200 and is expected to have a 10-year life and a $17,300 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. TH 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 Line Item Description Initial investment Operating cash flows: Annual revenues 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 calculation but, if required, round your final answers to the nearest dollar. Selling expenses Cost to manufacture Net operating cash flows. $9.20 30.00 Total for Year 1 Total for Years 2-9 (operating cash flow) Residual value 2.10 4.60 $45.90 Kauai Tools Inc. Net Cash Flows $534,600 Year 1 -225,200 ✔ -26,730 ✔ -454,410 X X 5 X Years 2-9 534,600 -26,730 ✔ -454,410 X X Last Year 534,600 -26,730 X X
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 9,900 units at $54 each. The ne manufacturing equipment will cost $225,200 and is expected to have a 10-year life and a $17,300 residual value. Selling expenses related to the new product are expected to be 5% of sales revenue. TH 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 Line Item Description Initial investment Operating cash flows: Annual revenues 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 calculation but, if required, round your final answers to the nearest dollar. Selling expenses Cost to manufacture Net operating cash flows. $9.20 30.00 Total for Year 1 Total for Years 2-9 (operating cash flow) Residual value 2.10 4.60 $45.90 Kauai Tools Inc. Net Cash Flows $534,600 Year 1 -225,200 ✔ -26,730 ✔ -454,410 X X 5 X Years 2-9 534,600 -26,730 ✔ -454,410 X X Last Year 534,600 -26,730 X X
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text: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 9,900 units at $54 each. The new
manufacturing equipment will cost $225,200 and is expected to have a 10-year life and a $17,300 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
Direct materials
Fixed factory overhead-depreciation
Variable factory overhead
Total
Line Item Description
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
Net operating cash flows
Total for Year 1
Total for Years 2-9 (operating cash flow)
Residual value
$9.20
30.00
2.10
4.60
Total for last year
$45.90
Kauai Tools Inc.
Net Cash Flows
Year 1
-225,200 ✓
$534,600✔ $534,600 ✔
-26,730 ✔
-26,730 ✔
-454,410 X
X $
Years 2-9
5 X
-454,410 X
X
Last Year
534,600 ✔
-26,730 ✔
> ×
X
X
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