Your company has spent $180,000 on research to develop a new computer game. The firm is planning to spend $40,000 on a
Posted: Sun May 08, 2022 10:38 am
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 per year. The
firm has a tax rate of 35 percent, an opportunity cost of capital
of 14 percent, and it expects net working capital to increase by
$50,000 at the beginning of the project. What will be the
operating cash flow (OCF) for year one of this
project?
MACRS rates:
Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%
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 per year. The
firm has a tax rate of 35 percent, an opportunity cost of capital
of 14 percent, and it expects net working capital to increase by
$50,000 at the beginning of the project. What will be the
operating cash flow (OCF) for year one of this
project?
MACRS rates:
Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Year 6: 5.76%