A.) The breakeven annual sales price is? _____%

B.) The breakeven annual sales units increase is ____Units

You are evaluating the HomeNet project under the following assumptions: You depreciate the equipment, costing $7.5 million, over three years using straight-line depreciation. 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 14%, calculate: a. The break-even annual sales price decline if sales of 50,000 units in year 1 increase by 55,000 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 25% 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 15% annually and the year 1 cost of $120/unit decreases by 25% annually. See E- a. The break-even annual sales price decline if sales of 50,000 units in year 1 increase by 55,000 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 25% annually. See The break-even annual sales price decline is %. (Round to two decimal places.) 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 15% annually and the year 1 cost of $120/unit decreases by 25% annually. See !! The break-even annual unit sales increase is units. (Round to the nearest integer.) Year 0 1 1 2 3 4 5 55 15% 260 120 105 221.00 90.00 160 187.85 67.50 215 159.67 50.63 25% HomeNet Units Sales (000s) Sales Price ($/unit) Cost of Goods Sold ($/unit) Operating Expenses ($000s) Hardware & Software Develop. Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Marginal Corporate Tax Rate (15,000) (2,800) (2,800) (2,800) (2,800) (7,500) 33.33% 40% 33.33% 40% 33.33% 40% 40% 40% 1 2 3 Incremental Earnings Forecast ($000) 1 Sales 2 Cost of Goods Sold 3 Gross Profits 4 Selling, General, and Administrative 5 Research and Development 6 Depreciation TEBIT 13,000 (6,000) 7,000 (2,800) 23,205 (9,450) 13,755 (2,800) 30,056 (10,800) 19,256 (2,800) 34,329 (10,885) 23,444 (2,800) (15,000) (2,500) 1,700 (2,500) 8,455 (2,500) 13,956 (15,000) 20,644 - Print none ILDI (I JUUU 1,1 UU 0,4JJ IJ,JJU 20,044 6,000 (9,000) (680) 1,020 (3,382) 5,073 (5,582) 8,374 (8,258) 12,386 8 Income Tax at 40% 9 Unlevered Net Income Free Cash Flow ($000) 10 Plus: Depreciation 11 Less: Capital Expenditures 12 Less: Increases in NWC 13 Free Cash Flow 17.500 2.500 2.500 2,500 2.500 (16,500 (1,050) 2,470 (1,013) 6,560 (825) 10,049 (628) 11.758 3.516 Year 0 2 3 4 5 (16,500) 2,470 6,560 10,049 11,758 3,516 Net Present Value ($000) 1 Free Cash Flow 2 Project Cost of Capital 14% 3 Discount Factor 4 PV of Free Cash Flow 5 NPV 1.000 (16,500) 6,286 0.8772 2,167 0.76950.6750 0.59210.5194 5,048 6,783 6,962 1,826