question archive 1)Your company has spent $230,000 on research to develop a new computer game
1)Your company has spent $230,000 on research to develop a new computer game
Subject:BusinessPrice: Bought3
1)Your company has spent $230,000 on research to develop a new computer game. The firm is planning to spend $43,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,300. The machine has an expected life of 10 years, a $28,000 estimated resale value, and falls under the MACRS 15-Year class life. Revenue from the new game is expected to be $330,000 per year, with costs of $130,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 12 percent, and it expects net working capital to increase by $53,000 at the beginning of the project. What will be the net cash flow for year one of this project?
2)You are evaluating a product for your company. You estimate the sales price of product to be $190 per unit and sales volume to be 10,900 units in year 1; 25,900 units in year 2; and 5,900 units in year 3. The project has a 3 year life. Variable costs amount to $115 per unit and fixed costs are $209,000 per year. The project requires an initial investment of $351,000 in assets which will be depreciated straight-line to zero over the 3 year project life. The actual market value of these assets at the end of year 3 is expected to be $49,000. NWC requirements at the beginning of each year will be approximately 13% of the projected sales during the coming year. The tax rate is 35% and the required return on the project is 8%. What will the year 2 cash flows for this project be?
3)You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $320,000. The truck falls into the MACRS 10-year class, and it will be sold after 10 years for $57,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,700. The truck will have no effect on revenues, but it is expected to save the firm $68,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 35 percent. What will the cash flows for this project be during year 3?
