KADS, Inc. has spent $450,000 on research to develop a new computer game. The firm is planning to spend $250,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $55,000. The machine has an expected life of three years, a $80,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $650,000 per year, with costs of $300,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $125,000 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 3 FCF

Essentials Of Investments
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Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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KADS, Inc. has spent $450,000 on research to develop a new computer game. The firm is planning to spend $250,000 on a machine
to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $55,000. The
machine has an expected life of three years, a $80,000 estimated resale value, and falls under the MACRS seven-year class life.
Revenue from the new game is expected to be $650,000 per year, with costs of $300,000 per year. The firm has a tax rate of 21
percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $125,000 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
1
3
FCF
Transcribed Image Text:KADS, Inc. has spent $450,000 on research to develop a new computer game. The firm is planning to spend $250,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $55,000. The machine has an expected life of three years, a $80,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $650,000 per year, with costs of $300,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $125,000 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 1 3 FCF
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