KADS, Inc. has spent $380,000 on research to develop a new computer game. The firm is...

KADS, Inc. has spent $380,000 on research to develop a new computer game. The firm is planning to spend $180,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $48,000. The machine has an expected life of three years, a $73,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $580,000 per year, with costs of $230,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $90,000 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 0

Year 1

Year 2

Year 3

Expert Solution

Depreciation Schedule
Year	Opening Balance	Depreciation Base	Depreciation %	Depreciation	Closing Balance
A	B	C	D	*E = CD**	F = B-E
1	228000	228000	14.29%	32581.2	195418.8
2	195418.8	228000	24.49%	55837.2	139581.6
3	139581.6	228000	17.49%	39877.2	99704.4

Calculation of Annual Cash Flows
Particulars	0	1	2	3
Initial Investment
Cost of machine	-180000
shipping and installation costs	-48000
Investment in net working capital	-90000
Net Investment (A)	-318000
Operating Cash Flows
Annual Revenue (B)		580000	580000	580000
Annual Costs (C )		230000	230000	230000
Depreciation (D)		32581.2	55837.2	39877.2
Profit Before Tax (E = B-C-D)		317418.8	294162.8	310122.8
Tax @21% (F = E*21%)		66657.948	61774.188	65125.788
Profit After Tax (G = E-F)		250760.852	232388.612	244997.012
Add back Depreciation (H = D)		32581.2	55837.2	39877.2
Net Operating Cash Flows (I = G+H)		283342.052	288225.812	284874.212
Terminal Value
Sale Value (J)				73000
Book value (K)				99704.4
Loss on sale (L = J-K)				-26704.4
Tax credit on loss (M = -L*21%)				5607.924
After tax loss (N = J+M)				78607.924
Recovery of net working capital (O)				90000
Net Terminal value (P = N+O)				168607.924
Total annual cash flows (Q = A+I+P)	-318000	283342.052	288225.812	453482.136

Cash Flow in Year 0 is -$318,000

Cash Flow in Year 1 is $283,342.05

Cahs Flow in Year 2 is $288,225.81

Cash Flow in Year 3 is $453,482.14

jeff jeffy answered 2 years ago

KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is...

KADS, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated using bonus depreciation; they total $50,000. The machine has an expected life of three years and a $75,000 estimated resale value. Revenue from the new game is expected to be $600,000 per year, with fixed costs of $250,000 per year....

KADS, Inc. has spent $360,000 on research to develop a new computer game. The firm is...

KADS, Inc. has spent $360,000 on research to develop a new computer game. The firm is planning to spend $160,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $46,000. The machine has an expected life of three years, a $71,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $560,000 per year, with costs of...

KADS, Inc. has spent $490,000 on research to develop a new computer game. The firm is...

KADS, Inc. has spent $490,000 on research to develop a new computer game. The firm is planning to spend $290,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $59,000. The machine has an expected life of three years, a $84,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $690,000 per year, with costs of...

KADS, Inc., has spent $400,000 on research to develop a new computer game. The firm is...

KADS, Inc., has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of three years, a $75,000 estimated resale value, and falls under the MACRS 7-year class life. Revenue from the new game is expected to be $600,000 per year, with costs of...

KADS, Inc. has spent RM300,000 on research to develop a new computer game. The firm is...

KADS, Inc. has spent RM300,000 on research to develop a new computer game. The firm is planning to spend RM250,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total RM50,000. The machine has an expected life of 3 years, a RM175,000 estimated resale value, and depreciation is estimated at RM35,725 for 1st year, RM61,225 for 2nd year and RM43,725 for 3rd year. Revenue from the new game...

Apricot, Inc. has spent $400,000 on research to develop a new computer game. The firm is...

Apricot, Inc. has spent $400,000 on research to develop a new computer game. The firm is planning to spend $200,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of 3 years, a $75,000 estimated resale value, and falls under the MACRS 7-Year class life. Revenue from the new game is expected to be $600,000 per year, with costs of...

Your company has spent $250,000 on research to develop a new computer game. The firm is...

Your company has spent $250,000 on research to develop a new computer game. The firm is planning to spend $1,400,000 on a machine to produce the new game. Shipping and installation costs for the new machine total $200,000 and these costs will be capitalized and depreciated together with the cost of the machine. The machine will be used for 3 years, has a $200,000 estimated resale value at the end of three years, and will be depreciated straight line over...

Your company has spent $180,000 on research to develop a new computer game. The firm is...

Your company has spent $180,000 on research to develop a new computer game. The firm is planning to spend $40,000 on a machine to produce the new game. Shipping and installation costs of $5,000 for the machine will be capitalized and depreciated. The machine has an expected life of five years, a $25,000 estimated resale value, and falls under the MACRS five-year class life. Revenue from the new game is expected to be $200,000 per year, with costs of $100,000...

Guardian Inc. is trying to develop an asset-financing plan. The firm has $380,000 in temporary current...

Guardian Inc. is trying to develop an asset-financing plan. The firm has $380,000 in temporary current assets and $280,000 in permanent current assets. Guardian also has $480,000 in fixed assets. Assume a tax rate of 30 percent. a. Construct two alternative financing plans for Guardian. One of the plans should be conservative, with 80 percent of assets financed by long-term sources, and the other should be aggressive, with only 56.25 percent of assets financed by long-term sources. The current interest...

ABC Computer, Inc. wants to develop and sell a new kind of computer. This new computer...

ABC Computer, Inc. wants to develop and sell a new kind of computer. This new computer is estimated to have a customer selling price of $24,600. ABC thinks they can find customers to buy 1,630 per year of this new computer. ABC now sells 1,980 units of its current computer model per year. If the new computer is introduced, sales of the current computer model will decline to 1,650 units annually. The current computer model sells for $23,000. Variable costs...

Question