KADS, Incorporated 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 using bonus depreciated; they total $55,000. The machine has an expected life of threeyears, 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, has an opportunity cost of capital of 13 percent, and expects net working capital to increase by $125,000 at thebeginning of the project.What will the cash flows for this project be?

Asset cost $305,000Less: Depreciation charged ($171,625)WDV of machine at the time of sale…

Answered: KADS, Incorporated has spent $450,000…

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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