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?

Expert Solution

AS YOU HAVE ASKED ABOUT A SPECIFIC QUESTION, I HAVE EXPLAINED IT. ANY OTHER HELP ON THIS QUESTION, LET ME KNOW, THANK YOU

jeff jeffy answered 1 year ago

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...

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 $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...

Your firm is contemplating the purchase of a new $490,000 computer-based order entry system. The system...

Your firm is contemplating the purchase of a new $490,000 computer-based order entry system. The system will be depreciated straight-line to zero over its 7-year life. It will be worth $49,000 at the end of that time. You will be able to reduce working capital by $34,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. Assume the tax rate is 24 percent. a. What is the aftertax salvage value...

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