Question
your company has spent $200000 on research to develop a new computer game. The firm is planning to spend $250000 on a machine to produce
your company has spent $200000 on research to develop a new computer game. The firm is planning to spend $250000 on a machine to produce the new game. The machine has an expected life of three years, a $45 000 estimated resale value, at the end of the third year an falls under MACRS 7-year class life. Revenew from the new game is expected to be $400000 per year with cost of $160000 per year. The firm has a tax rate of 35%, an oportunity cost of capital of 10% and it expects net working capital to increase by $75000 at the beggining of the project.
a.What will the initial cash flow be for this project?
b. What will the operating cash flow for this three year project be? year1 year2 year 3
c. What will the terminal cash flow be?
d. What is the net present value of the project. PV future, PV cost, and NPV
e. What is its profitability index?
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