Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 8,100 units at $50 each. The new manufacturing equipment will cost $166,700 and is expected to have a 10-year life and $12,800 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 $8.5 Direct materials 27.8 Fixed factory overhead-depreciation 1.9 Variable factory overhead 4.3 Total $42.5 Determine the net cash flows for the first
Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 8,100 units at $50 each. The new manufacturing equipment will cost $166,700 and is expected to have a 10-year life and $12,800 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 $8.5 Direct materials 27.8 Fixed factory overhead-depreciation 1.9 Variable factory overhead 4.3 Total $42.5 Determine the net cash flows for the first
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Nature’s Way Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The garden tool is expected to generate additional annual sales of 8,100 units at $50 each. The new manufacturing equipment will cost $166,700 and is expected to have a 10-year life and $12,800 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 | $8.5 | |
| Direct materials | 27.8 | |
| Fixed factory |
1.9 | |
| Variable factory overhead | 4.3 | |
| Total | $42.5 |
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
| Nature’s Way Inc. | |||
| Net Cash Flows | |||
| Year 1 | Years 2-9 | Last Year | |
| Initial investment | fill in the blank 1 | ||
| Operating cash flows: | |||
| Annual revenues | $fill in the blank 2 | $fill in the blank 3 | $fill in the blank 4 |
| Selling expenses | fill in the blank 5 | fill in the blank 6 | fill in the blank 7 |
| Cost to manufacture | fill in the blank 8 | fill in the blank 9 | fill in the blank 10 |
| Net operating cash flows | $fill in the blank 11 | $fill in the blank 12 | $fill in the blank 13 |
| Total for Year 1 | $fill in the blank 14 | ||
| Total for Years 2-9 | $fill in the blank 15 | ||
| Residual value | fill in the blank 16 | ||
| Total for last year | $fill in the blank 17 |
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