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Your company has spent $500,000 on
research to develop a new computer game.
The firm is planning to spend $100,000 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
$100,000 estimated resale value, and falls under the MACRS 5-Year class life.
Revenue from the new game is expected to be $500,000 per year, with costs of
$200,000 per year. The firm has a tax rate of 35 percent, an opportunity cost
of capital of 10 percent, and it expects net working capital to increase by
$100,000 at the beginning of the project. What will be the net cash flow for
year one of this project?