Question
Your company has spent $250,000 on research to develop a new computer game. The firm is planning to spend $45,000 on a machine to produce
Your company has spent $250,000 on research to develop a new computer game. The firm is planning to spend $45,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,500. The machine has an expected life of 5 years, a $30,000 estimated resale value, and falls under the MACRS 7-Year class life. Revenue from the new game is expected to be $350,000 per year, with costs of $150,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $55,000 at the beginning of the project. What will be the net cash flow for year one of this project?
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