Calculate Cash Flows
Daffodil Inc. is planning to invest in manufacturing equipmentto make a new garden tool. The new garden tool is expected togenerate additional annual sales of 120,000 units at $9 each. Thenew manufacturing equipment will cost $320,000, have a 10-yearlife, a residual value of $20,000, and will be depreciated usingthe straight-line method. Selling expenses related to the newproduct are expected to be 15% of sales revenue. The cost tomanufacture the product includes the following on a per-unitbasis:
Direct labor $1.00 Direct materials 3.40 Fixed factory overheadâdepreciation 0.25 Variable factory overhead 0.35 Total $5.00
a. Determine the net cash flows for the firstyear of the project, Years 2â9, and for the last year of theproject.
Use the minus sign to indicate cash outflows.
Year 1 Years 2 - 9 Last Year Operating cash flows: Annual revenues $ $ $ Selling expenses Cost to manufacture Net operating cash flows $ $ $ Initial investment $ Total for year 1 $ Total for years 2-9 $ Residual value Total for last year $
b. Assume that the operating cash flows occurevenly throughout the year and that the equipment is purchased onJanuary 1, 20Y1. Determine when the cash payback will occur byyear, month, and day.
Calculate Cash Flows
Daffodil Inc. is planning to invest in manufacturing equipmentto make a new garden tool. The new garden tool is expected togenerate additional annual sales of 120,000 units at $9 each. Thenew manufacturing equipment will cost $320,000, have a 10-yearlife, a residual value of $20,000, and will be depreciated usingthe straight-line method. Selling expenses related to the newproduct are expected to be 15% of sales revenue. The cost tomanufacture the product includes the following on a per-unitbasis:
| Direct labor | $1.00 | |
| Direct materials | 3.40 | |
| Fixed factory overheadâdepreciation | 0.25 | |
| Variable factory overhead | 0.35 | |
| Total | $5.00 | |
a. Determine the net cash flows for the firstyear of the project, Years 2â9, and for the last year of theproject.
Use the minus sign to indicate cash outflows.
| Year 1 | Years 2 - 9 | Last Year | |||
| Operating cash flows: | |||||
| Annual revenues | $ | $ | $ | ||
| Selling expenses | |||||
| Cost to manufacture | |||||
| Net operating cash flows | $ | $ | $ | ||
| Initial investment | $ | ||||
| Total for year 1 | $ | ||||
| Total for years 2-9 | $ | ||||
| Residual value | |||||
| Total for last year | $ | ||||
b. Assume that the operating cash flows occurevenly throughout the year and that the equipment is purchased onJanuary 1, 20Y1. Determine when the cash payback will occur byyear, month, and day.
Related questions
Calculate Cash Flows
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 8,600 units at $48.00 each. The new manufacturing equipment will cost $167,600 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 4% 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 2â9, 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 answer to the nearest dollar.
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Factor Company is planning to add a new product to its line. Tomanufacture this product, the company needs to buy a new machine ata $491,000 cost with an expected four-year life and a $15,000salvage value. All sales are for cash, and all costs areout-of-pocket, except for depreciation on the new machine.Additional information includes the following. (FV of $1, PV of $1,FVA of $1 and PVA of $1) (Use appropriate factor(s) from the tablesprovided.) Expected annual sales of new product $ 1,960,000Expected annual costs of new product Direct materials 490,000Direct labor 676,000 Overhead (excluding straight-line depreciationon new machine) 335,000 Selling and administrative expenses 141,000Income taxes 40 % Required:
Compute the net present value for this machine using a discountrate of 6% and assuming that cash flows occur at each year-end.(Hint: Salvage value is a cash inflow at the end of theassetâs life.) (Do not round intermediatecalculations.) |
