Expert Solutions

1) KADS, Inc. has spent $390,000 on research to develop a new computer game. The firm is planning to spend $199,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $49,000. The machine has an expected life of three years, a $74,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $599,000.00 per year, with costs of $249,000.00 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 0 percent, and it expects net working capital to increase by $99,000.00 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)

2) KADS, Inc. has spent $450,000 on research to develop a new computer game. The firm is planning to spend $205,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $55,000. The machine has an expected life of three years, a $80,000 estimated resale value, and falls under the MACRS seven-year class life. Revenue from the new game is expected to be $605,000.00 per year, with costs of $255,000.00 per year. The firm has a tax rate of 30 percent, an opportunity cost of capital of 0 percent, and it expects net working capital to increase by $105,000.00 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)

3) Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 9.5 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

4) The cash flows for Project C is shown below with the appropriate cost of capital at 9.5 percent and the maximum allowable payback is three years.