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 five years, a $60,000 estimated resale value, and falls under the MACRS seven-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 $700,000 per year, with costs of $350,000 per year. The firm has a tax rate of 40 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 4 (ONLY YEAR 4!) estimated after-tax cash flow for this project be?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started