Please help with this problem, I cannot figure it out. Homework is due in an hou
ID: 2761969 • Letter: P
Question
Please help with this problem, I cannot figure it out.
Homework is due in an hour. THANK YOU!
KADS, Inc., has spent $410,000 on research to develop a new computer game. The firm is planning to spend $210,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $51,000. The machine has an expected life of three years, a $76,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $610,000 per year, with costs of $260,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 11 percent, and it expects net working capital to increase by $105,000 at the beginning of the project.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
Year FCF 2Explanation / Answer
cost = 210000 + 51000 = 261000
**Book value at year 3 = 261000-139034.7(Total depreciation) = 121965.3
Loss on sale = 76000-121965.3 = -45965.3
Tax saving on loss= 45965.3 *.4 = 18386.12
After tax cash inflow = 18386.12 + 76000 = 94386.12
1 2 3 Rate 14.29 24.49 14.49 Depreciation [Rate *cost] 37296.9 [261000*.1429] 63918.9 37818.9