Nature's Way 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 2,500 units at $60 each. The new manufacturing equipment will cost $227,000 and is expected to have a 10-year life and $17,000 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 $ 8.00 Direct materials 22.00 Fixed factory overhead—depreciation 8.40 Variable factory overhead 3.60 Total $42.00 Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project.
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Nature's Way 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 2,500 units at $60 each. The new manufacturing equipment will cost $227,000 and is expected to have a 10-year life and $17,000 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 | $ 8.00 |
| Direct materials | 22.00 |
| Fixed factory |
8.40 |
| Variable factory overhead | 3.60 |
| Total | $42.00 |
Determine the net cash flows for the first year of the project, Years 2–9, and for the last year of the project. Use a minus sign to indicate
last year
| Year 1 | years 2-9 | ||
| 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 | $ | ||
| Residual value | |||
| Total for last year | $ |
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