Question: You work for a company that is evaluating developing a new online video game. Your company will need to spend $2 million per year in
You work for a company that is evaluating developing a new online video game. Your company will need to spend $2 million per year in software development costs at the end of each of the next four years (all of which are tax deductible). Starting the end of the fifth year, you expect to sell the game for an annual subscription price of $300 per player. It will be sold through Apple's game site, and Apple will keep 25% of the price. On top of this, your company expects to have to pay ongoing development costs of $500,000 per year, all of which will be expensed (i.e., tax deductible). At the end of the 15 years of selling the game, your company expects to sell the list of subscribers to another company for $1 million (which will also be taxable). Given the risk of the investment, your company requires a 25% annual rate of return. Your company's tax rate is 30%. Use this information for questions 9 - 11. Enter all your answers to the nearest dollar, without a dollar sign. To help you with your "time line", $2 million in software development costs are expected to spentĀ .
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