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Compute Cash flows for the initial time-period (year 0) and the future four years of the project. The firm is planning to spend $220,000 on

Compute Cash flows for the initial time-period (year 0) and the future four years of the project.

  • The firm is planning to spend $220,000 on a machine to produce the new video game. Shipping and installation costs = $20,000.
  • The machine is depreciated using straight line depreciation to an ending salvage value of $0 over its 4-year useful life.
  • Revenue from the new video game is expected to be $600,000 in the year 1 and 5% increase every year until year 4.
  • Operating cost = $250,000 in year 1 and are expected to increase by 5% each year until year 4
  • The firm has a tax rate of 34%
  • It expects net working capital to increase by $100,000 at the beginning of the project, 20,000 in years 1 and 2. Net working capital is collected back at the end of the project.

The project lasts for four years. What are the cash flows of the project?

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