Research to develop a new computer game

Assignment Help Finance Basics
Reference no: EM131133254

Your company has spent $250,000 on research to develop a new computer game. The firm is planning to spend $1,400,000 on a machine to produce the new game. Shipping and installation costs for the new machine total $200,000 and these costs will be capitalized and depreciated together with the cost of the machine. The machine will be used for 3 years, has a $200,000 estimated resale value at the end of three years, and will be depreciated straight line over 4 years. Revenue from the new game is expected to be $1,200,000 per year, with costs of $500,000 per year. The firm has a tax rate of 35 percent, a cost of capital (discount rate) of 6 percent, and it expects net working capital (NWC) to increase by $150,000 at the beginning of the project. This investment in NWC will be wholly recouped at the end of the project. .

A) Complete the table below.

B) In the second table below calculate the Net Present Value (NPV) of the project.

C) Calculate the Profitability Index (PI) of the project.

D) Is the Internal Rate of Return (IRR) of the project greater than, equal to, or less than the cost of capital (discount rate)?

E) Should your company proceed with this project? Explain based on the decision criteria for NPV, PI, and IRR.

Year

0

1

2

3






Revenue










Costs










Depreciation










EBIT










Taxes










Net Income










Operating Cash Flow










Change in Net Operating Working Capital










Change in Gross Fixed Assets










Total Free Cash Flow





Net Present Value


Profitability Index


Internal Rate of Return >, =, or


Proceed with the project? Explain.

Reference no: EM131133254

Questions Cloud

How did they impact european-native american relations : What is a "virgin soil" epidemic? How did they impact European-Native American relations? What would have happened throughout North America if Native Americans had not been so vulnerable to these diseases?
In the context of the agency relationship managers : Select as choices all of the following that you believe depict the 'agency' relationship inside the corporation.
The effect of inflation on the effective capital-gains tax : What is the real interest rate you are paying on your mortgage in each case?
Libris expects assets and current liabilities to grow : The Libris Publishing Company had revenues of $200 million this year and expects a 50% growth to $300 million next year. Costs and expenses other than interest are forecast at $250 million.
Research to develop a new computer game : Your company has spent $250,000 on research to develop a new computer game. The firm is planning to spend $1,400,000 on a machine to produce the new game. Shipping and installation costs for the new machine total $200,000 and these costs will be c..
The following questions on a separate document : Directions: Answer the following questions on a separate document. Explain how you reached the answer or show your work if a mathematical calculation is needed, or both. Submit your assignment using the assignment link in the course shell. This h..
Economic policy maker in the united states : Do you agree with your colleague? Discuss the advantages and disadvantages of imposing an explicit Taylor rule on the Fed.
Identify the brand which means three oceans : Identify the brand which means ‘Three Oceans' in English. - and has its motto as "Saving the Earth and Serving its People"
How those outcomes would influence society and culture : Evaluate the ethical outcomes that result from the position you take on the issue and explain how those outcomes would influence society and culture. Interpret statistical data from at least two peer-reviewed scholarly sources.

Reviews

Write a Review

 

Finance Basics Questions & Answers

  Describe the development of professional venture investing

Describe the development of professional venture investing in the 1960s, 1970s, and early 1980s.

  Managers of virtual teams face

What are two unique challenges that managers of virtual teams face?

  What is the best estimate of the nominal interest rate

Assuming that interest rates in the economy are expected to remain at their current level, what is the best estimate of the nominal interest rate on new bonds? Round your answer to two decimal places.

  The conservative approach to financing funds requirements

A decrease in a company's ration of current liabilities to total assets profitability and risk, as reflected by a in net working capital, The conservative approach to financing funds requirements suggests financing both short- and long-term needs;

  What was its return on invested capital

Short-term investments = $200; Stockholders' equity = $1,800; Total debt = $700; and Total operating capital = $2,300. What was its return on invested capital (ROIC)?

  What annual rate of return will rishi earn with this invest

What annual rate of return will Rishi earn with this investment? Rishi is considering another investment, of equal risk, that earns an annual return of 8%. Which investment should he make, and why?

  A large financial institution is losing market share to

1.a large financial institution is losing market share to savvy upstart companies and it has asked its top marketing

  What is the 6 month forward exchange rate

Six-month T-bills have a nominal rate of 7 percent, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5 percent. In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month for..

  What does the beta of the second stock have to be

You would like to create a portfolio that is equally invested in a risk-free asset and two stocks. One stock has a beta of 1.92. What does the beta of the second stock have to be if you want the portfolio to have a beta of 0.76?

  Why is moores law important for managers

Why is Moore's Law important for managers? How does it influence managerial thinking?

  Similarities of common stocks and bonds

Contrast the differences/similarities of common stocks and bonds. Explain how they would be used in the corporate environment.

  Metallica bearings inc is a young start-up company no

metallica bearings inc. is a young start-up company. no dividends will be paid on the stock over the next nine years

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd