KADS, Inc, Has Spent $400,000 on Research to Develop a New

question 56

Multiple Choice

KADS, Inc., has spent $400,000 on research to develop a new computer game. The firm is planning to spend $50,000 on a machine to produce the new game. Shipping and installation costs of the machine will be capitalized and depreciated; they total $50,000. The machine has an expected life of three years, a $75,000 estimated resale value, and falls under the MACRS five-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 21 percent, an opportunity cost of capital of 15 percent, and it expects net working capital to increase by $100,000 at the beginning of the project. What will the year 2 operating cash flow for this project be?

• A) $243,720
• B) $174,200
• C) $194,200
• D) $195,000

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Definitions:

Logic

The study of principles of reasoning, especially the structure of propositions as distinguished from their content and of method and validity in deductive reasoning.

Thermocouple

"A temperature-measuring device that utilizes two dissimilar metals for temperature measurement. As the junction of the two dissimilar metals is heated, a proportional voltage difference, which can be measured, is generated."

Source A

May refer to the original or primary input in data processing, programming, or electrical systems, distinguishing it from secondary sources.