KADS, Inc. has spent $440,000 on research to develop a new computer game. The fi
ID: 2698458 • Letter: K
Question
KADS, Inc. has spent $440,000 on research to develop a new computer game. The firm is planning to spend $204,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and 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 $604,000.00 per year, with costs of $254,000.00 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 0 percent, and it expects net working capital to increase by $104,000.00 at the beginning of the project.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
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. Omit the "$" sign in your response.)
Explanation / Answer
cash flow for year 0 = -254000 -104000 = 358000
cash flow for year1 = 604000-254000-36296.6-109796.19 + 36296.6 = 240203.81
cash flowfor year 2 = 604000-254000-62204.6 -100728.39+62204.6 = 249271.61
cash floefor year 3 = 604000 -254000 -44424.6-106951.39+44424.6+104000+75000 = 422048.61
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