KADS, Inc. has spent $480,000 on research to develop a new computer game. The firm is planning to spend $280,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $58,000. The machine has an expected life of three years, has an $85,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $680,000 per year with costs of $330,000 per year. The firm has a tax rate of 40 percent, has an opportunity cost of capital of 11 percent, and expects net working capital to increase by $135,000 at the beginning of the project. What will the cash flows for this project be?

KADS, Inc. has spent $480,000 on research to develop a new computer game. The firm is planning to spend $280,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $58,000. The machine has an expected life of three years, has an $85,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $680,000 per year with costs of $330,000 per year. The firm has a tax rate of 40 percent, has an opportunity cost of capital of 11 percent, and expects net working capital to increase by $135,000 at the beginning of the project. What will the cash flows for this project be?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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