KADS, Inc., has spent $380,000 on research to develop a new computer game. The f
ID: 2453902 • Letter: K
Question
KADS, Inc., has spent $380,000 on research to develop a new computer game. The firm is planning to spend $180,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $48,000. The machine has an expected life of three years, a $73,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $580,000 per year, with costs of $230,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $90,000 at the beginning of the project.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
Explanation / Answer
Year 0 1 2 3 Cost of Machine -180000 Shipping and Installation -48000 Revenue 580000 580000 580000 Cost -230000 -230000 -230000 Depreciation -76000 -50667 -28333 Net Income 274000 299333 321667 Tax @ 35% -95900 -104766.55 -112583.45 Profit After Tax (PAT) 178100 194566.45 209083.55 FCF( PAT + Deprecition) 254100 245233.45 237416.55
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.