Candy Crush Inc. buys $1 million machine that will depreciate in straight line over the next 5 years. The machine is expected to make a new product that will generate new revenue of $1 million each year. Additional materials and administrative cost is expected to be 40% of the revenue. To finance the purchase, the company got a 5-year loan at 5% interest. Finally, corporate tax rate of Candy Crush is 20%. a) Based on the information given, construct the income statement of Candy Crush in year 1 and show its net income. b) What is the Cash Flow from Operation of Candy Crush in year 1? c) Construct Cash Flow from Investment and Cash Flow from Financing in year Assume that the loan is an amortized loan.
Candy Crush Inc. buys $1 million machine that will depreciate in straight line over the next 5 years. The machine is expected to make a new product that will generate new revenue of $1 million each year. Additional materials and administrative cost is expected to be 40% of the revenue. To finance the purchase, the company got a 5-year loan at 5% interest. Finally, corporate tax rate of Candy Crush is 20%. a) Based on the information given, construct the income statement of Candy Crush in year 1 and show its net income. b) What is the Cash Flow from Operation of Candy Crush in year 1? c) Construct Cash Flow from Investment and Cash Flow from Financing in year Assume that the loan is an amortized loan.
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 7PROB
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Candy Crush Inc. buys $1 million machine that will depreciate in straight line over the next 5 years. The machine is expected to make a new product that will generate new revenue of $1 million each year. Additional materials and administrative cost is expected to be 40% of the revenue. To finance the purchase, the company got a 5-year loan at 5% interest. Finally, corporate tax rate of Candy Crush is 20%.
a) Based on the information given, construct the income statement of Candy Crush in year 1 and show its net income.
b) What is the Cash Flow from Operation of Candy Crush in year 1?
c) Construct Cash Flow from Investment and Cash Flow from Financing in year Assume that the loan is an amortized loan.
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