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 (Links to an external site.) 7-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, KADS has 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?

According to the Management Report, should KADS go forward with the project?