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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 five years, a $25,000 estimated resale value, and falls under the macrs five-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 21 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?.

Respuesta :

The operating cash flow for one year of the project = $133150.

Capital cost :

Capital expenditures include costs for tangible assets such as plant and machinery purchases, as well as costs for intangible assets such as brands and software development. Capital costs are fixed, one-time costs to purchase land, buildings, construction, and equipment used in the production of goods or the provision of services. In other words, it is the total cost required to bring a project to a commercially exploitable state.

Evaluating the cash flow :

Total capital cost = cost of machine + installation cost

                                 = 40,000 +5000

                                 =45000

First year depreciation = total capital cost x MACRS rate

                                               = 45,000 x 20%

                                              = 9,000

Depreciation tax shield = Depreciation x tax rate

                                               = 9000 x 35%

                                              = 3,150

Revenue                                                                300000

(-) cost                                                                      -100000

Operating income (without depreciation)               200000

(-) Tax 35%                                                                    -70000

Net operating income                                                    130000

(+) Depreciation tax shield                                                   3150

Cash flow for year 1                                                           133150

Cash flow :

The amount of cash or cash equivalents that the company receives or distributes as payment(s) to creditors is called cash flow. Cash flow analysis is commonly used to analyze a company's liquidity position. Cash flow is a real or virtual movement of money: cash flow in the narrow sense is a payment, especially from one central bank account to another;

Learn more about cash flow :

brainly.com/question/27454259

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