High School

Determine the net cash flows for Kauai Tools Inc., which is planning to invest in new manufacturing equipment to produce a new garden tool.

- The new garden tool is expected to generate additional annual sales of 9,500 units at $42 each.
- The new manufacturing equipment will cost $164,600 and is expected to have a 10-year life and a $12,600 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.

Determine the net cash flows for:
1. The first year of the project
2. Years 2-9
3. 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.

Answer :

Final answer:

To determine the net cash flows for each year of the project, we need to consider the cash inflows from additional annual sales and the cash outflows related to the manufacturing equipment and selling expenses.

Explanation:

To determine the net cash flows for the first year of the project, years 2-9, and the last year of the project, we need to consider the cash inflows and cash outflows related to the new manufacturing equipment and the additional annual sales of the new garden tool.

In the first year, the cash outflow will include the cost of the new manufacturing equipment, which is $164,600. The cash inflow will include the additional annual sales of 9,500 units at $42 each, which amounts to $399,000. We also need to consider the selling expenses, which are 4% of the sales revenue, totaling $15,960.

For years 2-9, the cash inflows will remain the same as the first year, which is $399,000. However, the cash outflow will only include the selling expenses, which amount to $15,960.

For the last year of the project, the cash inflow and outflow will be the same as years 2-9, with cash inflows of $399,000 and cash outflows of $15,960.

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