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 seven-year class life. Revenue from the new game is expected to be $600,000 per year, with costs of $250,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the cash flows for this project be?
Answer to relevant QuestionsYour firm needs a computerized machine tool lathe which costs $50,000, and requires $12,000 in maintenance for each year of its three-year life. You are evaluating a project for The Ultimate recreational tennis racket, guaranteed to correct that wimpy backhand. You estimate the sales price of The Ultimate to be $400 per unit and sales volume to be 1,000 units in ...Compute the NPV statistic for Project K and recommend whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is sixpercent.Compute the PI statistic for Project Z for and advise the firm whether to accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 8percent.Use the PI decision rule to evaluate this project; should it be accepted orrejected?
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