Your company has spent $290,000 on research to develop a new computer game. The
ID: 2744133 • Letter: Y
Question
Your company has spent $290,000 on research to develop a new computer game. The firm is planning to spend $49,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,900. The machine has an expected life of 5 years, a $34,000 estimated resale value, and falls under the MACRS 7-Year class life. Revenue from the new game is expected to be $390,000 per year, with costs of $190,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $59,000 at the beginning of the project. What will be the net cash flow for year one of this project?
A. $132746
B. $130000
C. $-57646
D. $2746
Explanation / Answer
The cash flow for year 1 of this project is calculated as follows:
Hence answer is Option A: $132,746
Year 1 Revenue 390000 Costs 190000 Depreciation 7 year MACRS for year 1 7845.21 Profit before tax 192154.79 Tax at 35% 67254.1765 Net income 124900.6135 Add back depreciation 7845.21 Net Cash flow $ 132,745.82Related Questions
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