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 5,500 units at $48 each. The new manufacturing equipment will cost $107,200 and is expected to have a 10-year life and a $8,200 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 $8.20 Direct materials 26.70 Fixed factory overhead-depreciation 1.80 Variable factory overhead 4.10 Total $40.80 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. 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 5,500 units at $48 each. The new manufacturing equipment will cost $107,200 and is expected to have a 10-year life and a $8,200 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 $8.20 Direct materials 26.70 Fixed factory overhead-depreciation 1.80 Variable factory overhead 4.10 Total $40.80 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 5,500 units at $48 each. The new manufacturing equipment will cost $107,200 and is expected to have a 10-year life and a $8,200 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 | $8.20 | |
| Direct materials | 26.70 | |
| Fixed factory |
1.80 | |
| Variable factory overhead | 4.10 | |
| Total | $40.80 |
Determine the net
Transcribed Image Text: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
Natural Foods Inc.
Net Cash Flows
Total for last year
Year 1
107,200 X
264,000 ✔
10,560 X
214,500 X
Years 2-9
68,260 X
264,000 ✔
10,560 X
214,500 X
38,940 X $ 38,940 X
38,940 X
Last Year
264,000 ✓
10,560 X
214,500 X
38,940 X
8,200
47,140 X
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