Question

KADS, Inc., has spent $430,000 on research to develop a new spend $230,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $53,000. The machine has an expected life of three years, a $78,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $630,000 per year, with costs of $280,000 per year. The firm has a tax rate pf 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $115,000 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.) Year FCF $ -398,000 $ 226,176.28 $ 237,722.68

just figured it out nvm

Answer 1

MACRS depreciation 7 year rate asset value Depreciation value 14.29% 283,000.00 40,440.70 24.49% 283,000.00 69,306.70 17.49% 283,000.00 49,496.70 Year 1 Year 2 Year 3 Cost of machine Working capital (283,000.00) (115,000.00) Revenue Cost depreciation 630,000.00 280,000.00 40,440.70 630,000.00 280,000.00 69,306.70 630,000.00 280,000.00 49,496.70 profit before tax Tax @ 40% 309,559.30 123,823.72 280,693.30 112,277.32 300,503.30 120,201.32 185,735.58 40,440.70 168,415.98 69,306.70 net profits depreciation working capital recovery salvage value 180,301.98 49,496.70 115,000.00 78,000.00 Since salvage value is less than net book value so we have ignored tax impact 422,798.68 Total cash flow (398,000.00) 226,176.28 237,722.68