Camptown Togs, Inc., a children’s clothing manufacturer, has always found payroll processing to be costly because it must be done by a clerk so that the number of piece-goods coupons received by each employee can be collected and the types of tasks performed by each employee can be calculated. Not long ago, an industrial engineer designed a system that partially automates the process by means of a scanner that reads the piece-goods coupons. Management is enthusiastic about this system because it utilizes some personal computer systems that were purchased recently. It is expected that this new automated system will save $45,000 per year in labor. The new system will cost about $30,000 to build and test prior to operation. It is expected that operating costs, including income taxes, will be about $5,000 per year. The system will have a five-year useful life. The expected net salvage value of the system is estimated to be $3,000. (a) Identify the cash inflows over the life of the project.
(b) Identify the cash outflows over the life of the project.
(c) Determine the net cash flows over the life of the project.

a. Time period   Cash Inflow

    Year 1              $45,000

    Year 2             $45,000

    Year 3             $45,000

    Year 4             $45,000

    Year 5             $48,000 ($45,000+$3,000)

b. Time period   Cash Outflow

    Year 0             $30,000

    Year 1              $5,000

    Year 2             $5,000

    Year 3             $5,000

    Year 4             $5,000

    Year 5             $5,000

c. Time period   Cash Inflow  Cash Outflow  Net Cash Flow

    Year 0              $0                  $30,000          -$30,000

    Year 1              $45,000         $5,000              $40,000

    Year 2             $45,000         $5,000              $40,000              

    Year 3             $45,000         $5,000              $40,000

    Year 4             $45,000         $5,000              $40,000

    Year 4             $48,000         $5,000              $43,000

a

explanation:

you will have $2593.74 in 10 years if you set aside $1,000 at 10%

you will have $9321.91 in 20 years if you set aside $2000 at 8%

you will have $1469.32 in 5 years if you set aside $1000 at 8%

you will have $1296.87 in 10 years if you set aside $500 at 10%

you will have $239.66 in 15 years if you set aside $100 at 6%

you will have $4660.96 in 20 years if you set aside $1000 at 8%