Reference no: EM133166074

Questions -

Q1. Your company has spent $220,000 on research to develop a new computer game. The firm is planning to spend $42,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,200. The machine has an expected life of 7 years, a $27,000 estimated resale value, and falls under the MACRS 10-Year class life. Revenue from the new game is expected to be $320,000 per year, with costs of $120,000 per year. The firm has a tax rate of 21 percent, an opportunity cost of capital of 13 percent, and it expects net working capital to increase by $52,000 at the beginning of the project. What will be the net cash flow for year one of this project?

a. $991

b. $158,991

c. $158,000

d. $(48,191)

Q2. You are evaluating a project for your company. You estimate the sales price to be $280 per unit and sales volume to be 3,800 units in year 1; 4,800 units in year 2; and 3,300 units in year 3. The project has a three-year life. Variable costs amount to $130 per unit and fixed costs are $190,000 per year. The project requires an initial investment of $225,000 in assets which will be depreciated straight-line to zero over the three-year project life. The actual market value of these assets at the end of year 3 is expected to be $38,000. NWC requirements at the beginning of each year will be approximately 13 percent of the projected sales during the coming year. The tax rate is 21 percent and the required return on the project is 9 percent. What is the operating cash flow for the project in year 2?

a. $455,000

b. $434,450

c. $359,450

d. $465,950