KADS, Incorporated has spent $440,000 on research to develop a new computer game. The firm is planning to spend $240,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using bonus depreciated; they total $54,000. The machine has an expected life of three years, a $79,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $640,000 per year, with costs of $290,000 per year. The firm has a tax rate of 21 percent, has an opportunity cost of capital of 11 percent, and expects net working capital to increase by $120,000 at the beginning of the project. What will the cash flows for this project be? Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Year 0 1 2 3 FCF $ (414,000.00) $ 285,322.65 $ 291,620.13
KADS, Incorporated has spent $440,000 on research to develop a new computer game. The firm is planning to spend $240,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using bonus depreciated; they total $54,000. The machine has an expected life of three years, a $79,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $640,000 per year, with costs of $290,000 per year. The firm has a tax rate of 21 percent, has an opportunity cost of capital of 11 percent, and expects net working capital to increase by $120,000 at the beginning of the project. What will the cash flows for this project be? Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Year 0 1 2 3 FCF $ (414,000.00) $ 285,322.65 $ 291,620.13
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Raghubhai
Transcribed Image Text:KADS, Incorporated has spent $440,000 on research to develop a new computer game. The firm is planning to spend $240,000
on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using
bonus depreciated; they total $54,000. The machine has an expected life of three years, a $79,000 estimated resale value, and
falls under the MACRS seven-year class life. Revenue from the new game is expected to be $640,000 per year, with costs of
$290,000 per year. The firm has a tax rate of 21 percent, has an opportunity cost of capital of 11 percent, and expects net working
capital to increase by $120,000 at the beginning of the project.
What will the cash flows for this project be?
Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.
Year
0
1
2
3
FCF
$
(414,000.00) $
285,322.65 $
291,620.13
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