Your company has spent $380,000 on research to develop a new computer game. The firm is planning to spend $58,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $6,800. The machine has an expected use at your company of 7 years, a $43,000 estimated resale value, and falls under the MACRS 10-Year class life. Revenue from the new game is expected to be $480,000 per year, with costs of $280,000 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 $68,000 at the beginning of the project.

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
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Your company has spent $380,000 on research to develop a new computer game. The firm is planning to spend $58,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $6,800. The machine has an expected use at your company of 7 years, a $43,000 estimated resale value, and falls under the MACRS 10-Year class life. Revenue from the new game is expected to be $480,000 per year, with costs of $280,000 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 $68,000 at the beginning of the project.

What will be the net cash flow for year one of this project?

Multiple Choice

$159,361

$(66,161)

$158,000

$1,361

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