Out of Eden, Inc. is planning to invest in new manufacturing equipment to make a new garden tool. The new garden tool is expected to generate...
Out of Eden, 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 9,000 units at $42 each. The new manufacturing equipment will cost $156,000 and is expected to have a 10-year life and $12,000 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:
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.
| Schedule of Net Cash Flows | ||||||
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| Year 1 | Years 2 - 9 | Last Year | |||
| Initial investment |
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| Operating cash flows: |
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| Annual revenues |
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| Selling expenses |
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| Cost to manufacture |
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| Net operating cash flows |
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| Total for year 1 |
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| Total for years 2-9 |
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| Residual value |
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| Total for last year |
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