Your Company Has Spent $200,000 on Research to Develop a New

Your company has spent $200,000 on research to develop a new computer game. The firm is planning to spend $40,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $5,000. The machine has an expected life of 3 years, a $25,000 estimated resale value, and falls under the MACRS 5-Year class life. Revenue from the new game is expected to be $300,000 per year, with costs of $100,000 per year. The firm has a tax rate of 35 percent, an opportunity cost of capital of 14 percent, and it expects net working capital to increase by $50,000 at the beginning of the project. What will be the operating cash flow for year one of this project?

A) -$49,150
B) $3,150
C) $123,400
D) $133,150

Correct Answer:

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