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 using bonus depreciation, they total $48,000. The machine has an expected life of three years and a $73.000 estimated resale value. Revenue from the new game is expected to be $580,000 per year, with fixed 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? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Year FCF

Answer 1

Solution Research cost of $300,000 is not relevant Machine lesk: $180.000 Installation cost : Who Total machine cont : 228,000 +) Ronale value: 73.000 Machine available fox_159066 depreciation (at the end & 3rd year) Bonus Depreciation is claimed at initial period only Bonus Depreciation : $_15.5000 Statement showing free cash flown! Particularn o 3 Revenue (2,28000) $60.000 Soboo 5.60.000 talorking Capital (10000) (-) Depreciation (155000) fixed costs 030000) (230.000 (939000) Alex Revenue (16.3.000)_ _3.50000_ 3.50.000 350.000 enton Salvage value 73.000 Total Cash flows (1.63000) 35000 350000 423000 (az hox QaN (34830)_(73.500 (73500) (88830) Net cash flow (188,770)_276.500 276501_ 3344,170 tworking capital 90.000 - free cashflows (128,770) 276500 276500 424170