Your company has spent $240,000 on research to develop a new computer game. The

Question

Your company has spent $240,000 on research to develop a new computer game. The firm is planning to spend $44,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,400. The machine has an expected life of 3 years, a $29,000 estimated resale value, and falls under the MACRS 5-Year class life. Revenue from the new game is expected to be $340,000 per year, with costs of $140,000 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 14 percent, and it expects net working capital to increase by $54,000 at the beginning of the project. What will be the net cash flow for year one of this project?

Explanation / Answer

Initial outflow of cash = research $240000 + machine $44000 + S & Inst. $5400 = 289400 Depreciation for the first year = (289400 - 29000) * 20% as per MACRS = $52080 Cash inflow during first year = $340000 - expenses $140000 = $200000 Net Cash flow for year one of the project = [($200000 - dep $52080)(1 - tax 0.30)] + non-cash exp $52080 = $155624

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.