Question
KADS, Inc. has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce
KADS, Inc. has spent $300,000 on research to develop a new computer game. The firm is planning to spend $150,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $20,000. The machine has an expected life of 5 years, a $60,000 estimated resale value, and falls under the MACRS 7-Year class life. (depreciation of 14.29%, 24.49%, 17.49%,12.49% and 8.93% in years 1,2,3,4 and 5 respectively). Revenue from the new game is expected to be $800,000 per year, with costs of $350,000 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will the year 1,2,3,4 and 5 estimated after-tax cash flow for this project be?
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