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 $340,000 per year. The firm has a tax rate of 40 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $145,000 at the beginning of the project. What will the cash flows for this project be? I can calculate everything, but I don't understand how the change in fixed assets in year 3 is calculated, I see that the calculation is $84,000+(68618*.4) = -$111,447.08, but where did $68618 come from?

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jeff jeffy answered 1 year ago

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