Initial cost of machine will include only the cost to produce new game and shipping and installation cost. Research and development cost is not included in initial cost.
Therefore, Initial cost of machine = $50,000 + $5,000 = $55,000
MACRS depreciation rate of year 1 is 20%
Therefore depreciation for year 1 = $55,000 * 20% = $11,000
Now,
The operating cash flow (OCF) for year one of this project = (expected revenue - expected cost – depreciation) * (1- tax rate) + Depreciation
Where,
Expected revenue for year one = $300,000
Expected cost for year one = $200,000
Depreciation for year one = $11,000
Tax rate= 35%
Therefore,
The operating cash flow (OCF) for year one of this project = ($300,000 - $100,000 - $11,000) * (1-35%) + $11,000
= $189,000 * 0.65 + $11,000
= $122,850 + $11,000
= $133,850
Therefore correct answer is option: $133,850
Your company has spent $180,000 on research to develop a new computer game. The firm is...
Your company has spent $180,000 on research to develop a new computer game. The firm is planning to spend $50,000 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 $300,000 per year, with costs of $100,000...
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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...
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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...
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...
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