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Answer :
Final answer:
The net cash flow for Kauai Tools Inc. for the first year is $97,470, approximately the same for years 2-9, and $102,370 for the final year. This calculation takes into account total revenue and total expenses.
Explanation:
To calculate the net cash flows for Kauai Tools Inc., we first need to calculate the total revenue, total expenses, and total costs. Total revenue can be calculated by multiplying the number of units sold by the price per unit. In this case, 5,400 units at $30 each equals a total revenue of $162,000.
Total expenses include the selling expenses and the cost of the manufacturing equipment. Selling expenses are 5% of the sales revenue, amounting to $8,100. The cost of the new manufacturing equipment is spread over its useful life of 10 years, so the annual expense for this equipment is $56,430 (equipment cost minus residual value, all divided by the lifespan of the equipment, (564,300 - 4,900) / 10).
The net cash flow for the first year would be the total revenue minus the total expenses, which equates to $162,000 - $8,100 - $56,430 = $97,470. For Years 2-9, the net cash flow would be roughly the same if we assume constant sales and costs. However, for the last year, the net cash flow will be slightly higher because you can include the residual value of the equipment, which brings the total net cash flow to $102,370 ($97,470 + $4,900). Remember, these calculations make a simplified assumption of constant sales and costs.
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