Question

Your company has spent $300,000 on research to develop a new computer game. The firm is planning to spend $50,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $6,000. The machine has an expected life of 7 years, a $35,000 estimated resale value, and falls under the MACRS 10-Year class life. Revenue from the new game is expected to be $400,000 per year, with costs of $200,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $60,000 at the beginning of the project. What will be the net cash flow for year one of this project?

Multiple Choice

• $(57,176)

• $1,176

• $159,176

• $158,000

Answer 1

Inswer page:o1 Given details Company spent Computer game = 300, 000. on fiam is planning to spend: $ 50, 00 shipping capitalized and depsteciated ; they and installation costs 4 the machine total = fso0. will be 6000 machine has capacted life = estimated resale value $ 35000. gome is eapected = t 400,000(por ya) ť 200,000 (por you) Revenue aom new %3D with ost %3D fiim has tax xate oppunturity cost f capital = 134. net wohking apital - 4 60,00 Required net cash flow ot yeor $ the projest one dopaeiation - 50, o00 + $ 6000 56000 56000 xl0/. $ 5600

page:02 dopaciation. costs - EBIT = $ 200,000 - 5600 $ 194400 Tax @ २। (. $194400X (211.) %3D 40824 Net income EBIT- Tax @ Q11. 400 -40824 = $153546 depreiation $ 5600 net cash flow for year one depneciation. net income + $153546 t$ 5600 $159176