**Project Cash Flow Analysis for KADS, Inc.**KADS, Inc. has invested $400,000 in research for a new computer game. The company plans to spend $200,000 on a machine required for game production. The shipping and installation costs, which will be capitalized and depreciated, amount to $50,000. The machine has a lifespan of three years with an estimated resale value of $75,000, and it will be depreciated using the MACRS seven-year class life. The new game is projected to generate $600,000 annually with $250,000 in associated yearly costs. The firm is subject to a 21% tax rate, has a 15% opportunity cost of capital, and anticipates a $100,000 increase in net working capital at the project's start.**Cash Flow Analysis Table**| Year | 0 | 1 | 2 | 3 ||------|---|---|---|---|| FCF | | | | |- **Year 0**: Initial investments and changes to net working capital occur.- **Years 1-3**: Cash flows are influenced by revenue, costs, depreciation, and taxes.**Instructions for Calculation:**- Negative cash flows should be marked with a minus sign.- Answers should be rounded to two decimal places.This analysis will aid in understanding the financial implications and viability of the project over its lifecycle.

Year 0 1 2 3 Sales 0 600000.00 600000.00 600000.00 Less: Fixed Costs 0 -250000.00 -250000.00 -250000.00 Less: Depreciation 0 -35725.00 -61225.00 -43725.00 EBIT 0 314275.00 288775.00 306275.00 Less: Taxes 0 -65997.75 -60642.75 -64317.75 Net Income 0 248277.25 228132.25 241957.25 Add: Depreciation 0 35725.00 61225.00 43725.00 Operating Cash Flow 0 284002.25 289357.25 285682.25 Change in Net Working Capital -100000 0 0 100000 Initial Investment -250000 0 0 0 After-Tax Salvage Value 0 0 0 82208.25 Total Cash Flow -350000 240003.75 289357.25 467890.5Notes: 1) You need to use the MACRS table (Year 7%) to calculate the depreciation. 2) After-Tax Salvage Include Sales Value and Benefit realized on the sale of the machine. As regards salvage value, the formula is Sales Value + Tax Saving on Loss on Sale of Asset. Loss on Sale of Asset = Sales Value - Book Value. Book Value = Cost - Depreciation Upto 3 Years.

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KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of three years, a $75,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Year 2 FCF

KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of three years, a $75,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Year 2 FCF

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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