Question - 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 values. 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 7.00
Direct materials 23.40
Fixed factory overhead-depreciation 1.60
Variable factory overhead 3.60
Total 35.60
1. What is the net operating cash flows for years 2-9?
$378,000
$102,900
$65,100
$53,100
2. What is the net cash flows for the last year?
$378,000
$306,000
$65,100
$12,000