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 seven-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 21 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?

Answer 1