Question

Your company has spent $180,000 on research to develop a new computer game. The firm is planning to spend $40,000 on a machine to produce the new game. Shipping and installation costs of $5,000 for the machine will be capitalized and depreciated. The machine has an expected life of five years, a $25,000 estimated resale value, and falls under the MACRS five-year class life. Revenue from the new game is expected to be $200,000 per year, with costs of $100,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 14 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will be the operating cash flow (OCF) for year one of this project?

MACRS rates:

   Year 1: 20.00%

   Year 2: 32.00%

   Year 3: 19.20%

   Year 4: 11.52%

   Year 5: 11.52%

   Year 6: 5.76%

$ 133,850

$ 68,150

None of these are correct.

$ 136,160

$ 70,040

Answer 1

$68,150 (200000-100000) *0.65+(45000*0.2*0.35) oCF in year 1=