You are evaluating the HomeNet project under the following assumptions: new tax laws allow 100% bonus...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are evaluating the HomeNet project under the following assumptions: new tax laws allow 100% bonus depreciation (all the depreciation expense, $7.5 million, occurs when the asset is put into use, in this case immediately). Research and development expenditures total $15 million in year 0 and selling, general, and administrative expenses are $2.8 million per year (assuming there is no cannibalization). Also assume HomeNet will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). However, receivables related to HomeNet are expected to account for 15% of annual sales, and payables are expected to be 15% of the annual cost of goods sold. Under these assumptions and assuming a cost of capital of 12%, calculate the following: a. The break-even annual sales price decline if: sales of 50,000 units in year 1 increase by 51,000 units per year over the life of the project, the year 1 sales price is $260/unit, and the year 1 cost of $120/unit decreases by 21% annually. See b. The break-even annual unit sales increase if: sales are 50,000 units in year 1, the year 1 sales price of $260/unit, decreases by 12% annually and the year 1 cost of $120/unit decreases by 21% annually. See. a. The break-even annual sales price decline if: sales of 50,000 units in year 1 increase by 51,000 units per year over the life of the project, the year 1 sales price is $260/unit, and the year 1 cost of $120/unit decreases by 21% annually. See The break-even annual sales price decline is%. (Round to two decimal places.) Using the browser's print option may create an undesirable printout. Use the Print option in your question instead to get a in order to copy its contents into a spreadsheet.) Year better print out. the following icon Incremental Earnings Forecast ($000s) 1 Sales 2 Cost of Goods Sold HomeNet Units Sales (000s) Sales Price ($/unit) Cost of Goods Sold ($/unit) Operating Expenses ($000s) Hardware & Software Develop. Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Corporate Tax Rate 20% (Click on the following icon in order to copy its contents into a spreadsheet.) 3 Gross Profits 4 Selling, General, and Administrative 5 Research and Development 6 Depreciation 7 EBIT 8 Income Tax at 20% 9 Unlevered Net Income Free Cash Flow ($000s) 10 Plus: Depreciation 11 Less: Capital Expenditures 12 Less: Increases in NWC 13 Free Cash Flow (Click on the following icon Net Present Value ($000s) 1 Free Cash Flow 51 12% 21% 2 Project Cost of Capital 12% 3 Discount Factor 4 PV of Free Cash Flow 5 NPV 0 Year (15,000) (7,500) 100% 20% 0 (15,000) (7,500) (22,500) 4,500 (18,000) 7,500 (7,500) 1 0 (18,000) (2,800) 1 50 260 120 (1,050) (18,000) 2,310 in order to copy its contents into a spreadsheet.) Year 1 2 101 228.80 94.80 2,310 2 (2,800) (2,800) 20% 3 152 201.34 74.89 2 3 1.000 0.8929 0.7972 (18,000) 2,063 6,064 11,215 20% 13,000 23,109 30,604 35,968 (6,000) (9,575) (11,383) (12,009) 7,000 13,534 19,221 23,959 (2,800) (2,800) (2,800) (2,800) 4 4,200 10,734 16,421 21,159 (840) (2,147) (3,284) 3,360 8,587 13,137 203 177.18 59.16 3 (2,800) 4 20% (980) (854) (710) 7,607 12,283 16,217 (4,232) 16,927 4 7,607 12,283 16,217 0.7118 0.6355 8,743 10,306 5 5 3,594 3,594 5 3,594 0.5674 2,039 You are evaluating the HomeNet project under the following assumptions: new tax laws allow 100% bonus depreciation (all the depreciation expense, $7.5 million, occurs when the asset is put into use, in this case immediately). Research and development expenditures total $15 million in year 0 and selling, general, and administrative expenses are $2.8 million per year (assuming there is no cannibalization). Also assume HomeNet will have no incremental cash or inventory requirements (products will be shipped directly from the contract manufacturer to customers). However, receivables related to HomeNet are expected to account for 15% of annual sales, and payables are expected to be 15% of the annual cost of goods sold. Under these assumptions and assuming a cost of capital of 12%, calculate the following: a. The break-even annual sales price decline if: sales of 50,000 units in year 1 increase by 51,000 units per year over the life of the project, the year 1 sales price is $260/unit, and the year 1 cost of $120/unit decreases by 21% annually. See b. The break-even annual unit sales increase if: sales are 50,000 units in year 1, the year 1 sales price of $260/unit, decreases by 12% annually and the year 1 cost of $120/unit decreases by 21% annually. See. a. The break-even annual sales price decline if: sales of 50,000 units in year 1 increase by 51,000 units per year over the life of the project, the year 1 sales price is $260/unit, and the year 1 cost of $120/unit decreases by 21% annually. See The break-even annual sales price decline is%. (Round to two decimal places.) Using the browser's print option may create an undesirable printout. Use the Print option in your question instead to get a in order to copy its contents into a spreadsheet.) Year better print out. the following icon Incremental Earnings Forecast ($000s) 1 Sales 2 Cost of Goods Sold HomeNet Units Sales (000s) Sales Price ($/unit) Cost of Goods Sold ($/unit) Operating Expenses ($000s) Hardware & Software Develop. Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Corporate Tax Rate 20% (Click on the following icon in order to copy its contents into a spreadsheet.) 3 Gross Profits 4 Selling, General, and Administrative 5 Research and Development 6 Depreciation 7 EBIT 8 Income Tax at 20% 9 Unlevered Net Income Free Cash Flow ($000s) 10 Plus: Depreciation 11 Less: Capital Expenditures 12 Less: Increases in NWC 13 Free Cash Flow (Click on the following icon Net Present Value ($000s) 1 Free Cash Flow 51 12% 21% 2 Project Cost of Capital 12% 3 Discount Factor 4 PV of Free Cash Flow 5 NPV 0 Year (15,000) (7,500) 100% 20% 0 (15,000) (7,500) (22,500) 4,500 (18,000) 7,500 (7,500) 1 0 (18,000) (2,800) 1 50 260 120 (1,050) (18,000) 2,310 in order to copy its contents into a spreadsheet.) Year 1 2 101 228.80 94.80 2,310 2 (2,800) (2,800) 20% 3 152 201.34 74.89 2 3 1.000 0.8929 0.7972 (18,000) 2,063 6,064 11,215 20% 13,000 23,109 30,604 35,968 (6,000) (9,575) (11,383) (12,009) 7,000 13,534 19,221 23,959 (2,800) (2,800) (2,800) (2,800) 4 4,200 10,734 16,421 21,159 (840) (2,147) (3,284) 3,360 8,587 13,137 203 177.18 59.16 3 (2,800) 4 20% (980) (854) (710) 7,607 12,283 16,217 (4,232) 16,927 4 7,607 12,283 16,217 0.7118 0.6355 8,743 10,306 5 5 3,594 3,594 5 3,594 0.5674 2,039
Expert Answer:
Answer rating: 100% (QA)
To calculate the breakeven annual sales price decline we need to determine the sales price in each year and the corresponding cost of goods sold We ca... View the full answer
Related Book For
Posted Date:
Students also viewed these finance questions
-
You are evaluating the Home Net project under the following assumptions: Sales of 50,000 units in year 1 increasing by 55,000 units per year over the life of the project, a year 1 sales price of $...
-
List three specific parts of the Case Guide, Objectives and Strategy Section (See below) that you had the most difficulty understanding. Describe your current understanding of these parts. Provide...
-
1. Hannah is applying for a life policy on her girlfriend Sarahs life. The policy is $500,000 and carries a large premium. Hannah is the main earner, so she is concerned about not being able to pay...
-
Eric Ishton, a manager of the Plate Division for the Stone Ware Manufacturing company, has the opportunity to expand the division by investing in additional machinery costing $430,000. He would...
-
The vibration frequency for the molecule HF is 1.24 x 1014 Hz. The mass of a hydrogen atom is 1.67 x 10-27 kg, and the mass of a fluorine atom is 3.15 x 10-26 kg. (a) What is the force constant k'...
-
What is the purpose of a horizontal stabilizer trim brake system?
-
Identify the six different discovery devices. What is the purpose of each device?
-
1. How accurate is Adam Wainwright's analysis of the situation at Guitarras Dominguez? Do you think craftsmanship is incompatible with increasing productivity in this company? Why? 2. What social...
-
Fantastic Ltd. manufactures two types of storage cabinets, Standard and Executive. The management accountant has determined that the firm's overhead costs arises from three activities as follows:...
-
A sample of 20 items provides a sample standard deviation of 5. a. Compute the 90% confidence interval estimate of the population variance. b. Compute the 95% confidence interval estimate of the...
-
On October 1, 2018, Aquaman Company purchased inventory from Storm Surge Corporation for euro () 200,000, with payment due on February 1, 2019. On October 1, 2018, Storm Surge delivered the inventory...
-
What is ternary liquid-liquid equilibrium? How does a triangular diagram play an important role in explaining the phase equilibrium in a ternary system?
-
Show that the elevation of the boiling point is proportional to the molality of the solution.
-
What is boiling point elevation? Derive an expression on the relationship between the concentration of the solute and the boiling point elevation.
-
Justify the statement: Osmosis is of paramount importance in biological systems.
-
What is osmotic pressure? How does it play an important role in osmotic equilibrium?
-
Think about Elijah Cummings, a civil rights advocate and Congressman from Maryland. He is the first African American lawmaker to lie in state at the U.S. Capital. Please survey your favorite news...
-
ABC company leased new advanced computer equipment to STU Ltd on 1 January 2019.STULtd has to pay annual rental of $290,000 starting at 1 January 2019. It is a four years lease with ultimate rental...
-
Your firm is thinking of expanding. If you invest today, the expansion will generate $10 million in FCF at the end of the year, and will have a continuation value of either $150 million (if the...
-
You own a copper mine. The price of copper is currently $1.50 per pound. The mine produces 1 million pounds of copper per year and costs $2 million per year to operate. It has enough copper to...
-
The current price of Natasha Corporation stock is $6. In each of the next two years, this stock price can either go up by $2.50 or go down by $2. The stock pays no dividends. The one-year risk-free...
-
A steel cylinder containing air has a closely fitted piston and a set of stops as shown in Fig. 3.7. The piston is loaded with certain weights. The air inside the cylinder is initially at...
-
What is the difference between compressed liquid and saturated liquid?
-
Explain the significance of critical point and triple point.
Study smarter with the SolutionInn App