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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
provide answer
Transcribed Image Text: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?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education