Question

#1: Calculate Cash Flows

Nature’s Way 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 7,800 units at $32 each. The new manufacturing equipment will cost $101,400 and is expected to have a 10-year life and $7,800 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		$5.40
Direct materials		17.90
Fixed factory overhead-depreciation		1.20
Variable factory overhead		2.70
	Total	$27.20

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. Do not round your intermediate calculations but, if required, round your final answer to the nearest dollar.

Out of Eden, Inc.
Net Cash Flows
	Year 1	Years 2-9	Last Year
Initial investment	$
Operating cash flows:
Annual revenues	$	$	$
Selling expenses
Cost to manufacture
Net operating cash flows	$	$	$
Total for Year 1	$
Total for Years 2-9		$
Residual value
Total for last year			$

#2: Net Present Value—Unequal Lives

Bunker Hill Mining Company has two competing proposals: a processing mill and an electric shovel. Both pieces of equipment have an initial investment of $458,617. The net cash flows estimated for the two proposals are as follows:

	Net Cash Flow
Year	Processing Mill		Electric Shovel
1	$147,000		$184,000
2	131,000		171,000
3	131,000		157,000
4	104,000		162,000
5	79,000
6	66,000
7	57,000
8	57,000

The estimated residual value of the processing mill at the end of Year 4 is $180,000.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Determine which equipment should be favored, comparing the net present values of the two proposals and assuming a minimum rate of return of 12%. Use the present value table appearing above.

	Processing Mill	Electric Shovel
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

Which project should be favored?

#3 Average Rate of Return Method, Net Present Value Method, and Analysis for a service company

The capital investment committee of Arches Landscaping Company is considering two capital investments. The estimated income from operations and net cash flows from each investment are as follows:

	Front-End Loader					Greenhouse
Year	Income from Operations		Net Cash Flow			Income from Operations		Net Cash Flow
1	$52,500		$162,000			$110,000		$259,000
2	52,500		162,000			84,000		219,000
3	52,500		162,000			42,000		154,000
4	52,500		162,000			18,000		105,000
5	52,500		162,000			8,500		73,000
Total	$262,500		$810,000			$262,500		$810,000

Each project requires an investment of $500,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Required:

1a. Compute the average rate of return for each investment. If required, round your answer to one decimal place.

	Average Rate of Return
Front-End Loader	%
Greenhouse	%

1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.

	Front-End Loader	Greenhouse
Present value of net cash flow	$	$
Amount to be invested	$	$
Net present value	$	$

2. Prepare a brief report for the capital investment committee, advising it on the relative merits of the two investments.

The front-end loader has a smaller  net present value because cash flows occur later  in time compared to the greenhouse. Thus, if only one of the two projects can be accepted, the greenhouse  would be the more attractive.

#4 Cash Payback Period, Net Present Value Method, and Analysis

Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:

Year	Plant Expansion		Retail Store Expansion
1	$134,000		$112,000
2	109,000		131,000
3	95,000		90,000
4	86,000		63,000
5	26,000		54,000
Total	$450,000		$450,000

Each project requires an investment of $243,000. A rate of 12% has been selected for the net present value analysis.

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Required:

1a. Compute the cash payback period for each project.

	Cash Payback Period
Plant Expansion
Retail Store Expansion

1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.

	Plant Expansion	Retail Store Expansion
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

2. Because of the timing of the receipt of the net cash flows, the   offers a higher  .

Answer 1

AB G as per HomeworkLib policy, I'm obliged to answer first complete question. Kindly ask remaining questions in a seperate question. Still i have solved #4 extra as a gracious act #1 Last Year Out of Eden, Inc. Net Cash Flows Year 1 Years 2-9 Initial investment -$ 101,400 Operating cash flows: Annual revenues $ 249,600 $ 1,996,800 Selling expenses $ 9,984 $ 79,872 Cost to manufacture $ 202,800 -$1,622,400 Net operating cash flows $ 36,816 $ 294,528 Total for Year 1 -$ 64,584 Total for Years 2-9 $ 294,528 Residual value Total for last year $ 249,600 $ 9,984 $ 202,800 $ 36,816 $ 7,800 $ 44,616

cash flows present value of cash flows Retail Store Plant Expansion Expansion cumulative cash flows Plant Retail Store Expansion Expansion Year Plant Expansion Retail Store Expansion factor @ 12% -$ 243,000 -$ 243,000 -$ 243,000 -$ 243,000 $ 243,000 -$ 243,000 -$ 109,000 $ 134,000 $ 109,000 $ 95,000 $ 86,000 $ 26,000 $0 $ 112,000 $ 131,000 $ 90,000 $ 63,000 $ 54,000 0.893 0.797 0.712 $ 119,662 $ 86,873 $ 67,640 $ 54,696 $ 14,742 $ 100,613 $ 100,016 $ 104,407 $ 64,080 $ 40,068 $ 30,618 $ 96,189 $ 131,000 $0 $ 90,000 $ 153,000 $ 207,000 $ 95,000 $ 181,000 $ 207,000 0.636 0.567 Cash Payback Period years Plant Expansion Retail Store Expansion years 1b. Present value of net cash flow total Less amount to be invested Net present value Plant Expansion Retail Store Expansion $ 343,613 $ 339,189 $ 243,000 $ 243,000 $ 100,613 $ 96,189 Na Because of the timing of the receipt of the net cash flows, the Plant Expansion offers a highernet present value

for formulas and calculations, refer to the image below -

В4 А. - as per HomeworkLib policy, I'm obliged to answer first complete question. Kindly ask remaining questions in a seperate question. Still I have solved #4 extra as a gracious act Last Year N + ON OSA 2 Out of Eden, Inc. Net Cash Flows Year 1 Years 2-9 Initial investment -101400 Operating cash flows: Annual revenues =7800*32 =7800*32*8 Selling expenses =-D9*4% --E9*4% Cost to manufacture =-(5.4+17.9+2.7)*7800 --(5.4+17.9+2.7)*7800*8 Net operating cash flows =D9+D10+D11 =E9+E10+E11 Total for Year 1 =D7+D12 Total for Years 2-9 Residual value Total for last year =7800*32 --F9*4% =-(5.4+17.9+2.7) *7800 =F9+F10+F11 F12 7800 =F12+F15