Gardeneer Inc. is planning to invest $184,000 in a new garden tool that is expected to generate additional sales of 7,500 units at $38 each. The $184,000 investment includes $54,000 for initial launch related expenses and $130,000 for equipment that has a 10 year life and a $17,500 residual value. Selling expenses related to the new product are expected to be 6% of sales revenue. The cost to manufacture the product includes the following per unit costs:
|
Direct labor |
$ 6.00 |
|
Direct materials |
11.75 |
|
Fixed factory overhead—depreciation |
1.50 |
|
Variable factory overhead |
1.80 |
|
Total |
$21.05 |
Determine the net cash flows for the first year of the project, years 2–9, and for the last year of the project.