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Google has developed a powerful new search engine optimization technology they are marketing to corporations. It will cost them $20 million to buy the equipment necessary to buy the servers and other equipment. They own the warehouse necessary to house the equipment. They paid $1 million for it 5 years ago but its current market value is $1.5 million. The project also requires net working capital equal to 10% of the next year's sales. In year 1, Google will charge $50,000 per client (e.g., this is the sale price) and the variable costs are equal to $35,000 per client. Sale price and variable costs will increase by 2% per year. Fixed costs are $2 million per year in year 1 and will increase by 1% per year. It will take one year for the equipment and operations to be set up so the first year of sales will occur at t=1. The firm believes it can attract 1000 clients per year and that the project life is 4 years.

The equipment will be depreciated over a 5-year period using the 5-year MACRS schedule (20%, 32%, 19.20%, 11.52%, 11.52%, 5.76%). The estimated salvage value of the equipment is $500,000. Google's marginal tax rate is 35%.

What is the project's cash flow at time 0? Answer in dollars rounded to the nearest cent (e.g., 10000000.00)

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92840907

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