After looking at the projections of the HomeNet project, you decide that they are not realistic It is unlikely that sales will be constant over the four year life of the project Furthermore, other companies are likely to offer competing products, so the assumption that the sales price will remain constant is also likely to be optimistic Finally, as production ramps up, you anticipate lower per unit production costs resulting from economies of scale Therefore, you decide to redo the projections under the following assumptions Sales of 50,000 units in year 1 increasing by 50,000 units per year over the life of the project, a year 1 sales price of $260 unit, decreasing by 11 annually and a year 1 cost of $120 unit decreasing by 21 annually In addition, new tax laws allow you to depreciate the equipment, costing $7 5 million over three rather than five years using straight line depreciation a Keeping the underlying assumptions in Table 1 ( LOADING ) that research and development expenditures total $15 million in year 0 and selling, general, and administrative expenses are $2 8 million per year, recalculate unlevered net income (That is, reproduce Table 1 under the new assumptions given above Note that we are ignoring cannibalization and lost rent ) b Recalculate unlevered net income assuming, in addition, that each year 20 of sales comes from customers who would have purchased an existing Cisco router for $100 unit and that this router costs $60 unit to manufacture Keeping the underlying assumptions in Table 1 ( LOADING ) that research and development expenditures total $15 million in year 0 and selling, general, and administrative expenses are $2 8 million per year, recalculate unlevered net income (That is, reproduce Table 1 under the new assumptions given above Note that we are ignoring cannibalization and lost rent ) Part 2 Calculate the yearly unlevered net income below (Round to the nearest dollar ) Year 0 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 3 (Round to the nearest dollar ) Year 1 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 4 (Round to the nearest dollar ) Year 2 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 5 (Round to the nearest dollar ) Year 3 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 6 (Round to the nearest dollar ) Year 4 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 7 b Recalculate unlevered net income assuming, in addition, that each year 20 of sales comes from customers who would have purchased an existing Linksys router for $100 unit and that this router costs $60 unit to manufacture Part 8 Calculate the yearly unlevered net income below (Round to the nearest dollar ) Year 0 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 9 (Round to the nearest dollar ) Year 1 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 10 (Round to the nearest dollar ) Year 2 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 11 (Round to the nearest dollar ) Year 3 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Part 12 (Round to the nearest dollar ) Year 4 Incremental Earnings Forecast ($000) Sales $ Cost of Goods Sold $ Gross Profits $ Selling, General, and Admin $ Research and Development $ Depreciation $ EBIT $ Income Tax at 40 $ Unlevered Net Income $ Udld laore asp el ) Year 0 1 2 3 4 5 0 Incremental Earnings Forecast ($000) 1 Sales 2 Cost of Goods Sold 3 Gross Profits 4 Selling, General, and Administrative 26,000 26,000 26,000 26,000 (11,000) (11,000) (11,000) (11,000) 15,000 15,000 15,000 15,000 (2,800) (2,800) (2,800) (2,800)

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Sep 28, 2024

After looking at the projections of the HomeNet project, you decide that they are not realistic. It is unlikely that sales will be constant over

After looking at the projections of the HomeNet project, you decide that they are not realistic. It is unlikely that sales will be constant over the four-year life of the project. Furthermore, other companies are likely to offer competing products, so the assumption that the sales price will remain constant is also likely to be optimistic. Finally, as production ramps up, you anticipate lower per unit production costs resulting from economies of scale. Therefore, you decide to redo the projections under the following assumptions: Sales of

50,000

units in year 1 increasing by

50,000

units per year over the life of the project, a year 1 sales price of

$260/unit,

decreasing by

11%

annually and a year 1 cost of

$120/unit

decreasing by

21%

annually. In addition, new tax laws allow you to depreciate the equipment, costing

$7.5

million over three rather than five years using straight-line depreciation.

a. Keeping the underlying assumptions in Table 1 (

) that research and development expenditures total

$15

million in year 0 and selling, general, and administrative expenses are

$2.8

million per year, recalculate unlevered net income. (That is, reproduce Table 1 under the new assumptions given above. Note that we are ignoring cannibalization and lost rent.)

b. Recalculate unlevered net income assuming, in addition, that each year

20%

of sales comes from customers who would have purchased an existing Cisco router for

$100/unit

and that this router costs

$60/unit

to manufacture.

. Keeping the underlying assumptions in Table 1 (

) that research and development expenditures total

$15

million in year 0 and selling, general, and administrative expenses are

$2.8

million per year, recalculate unlevered net income. (That is, reproduce Table 1 under the new assumptions given above. Note that we are ignoring cannibalization and lost rent.)

Part 2

Calculate the yearly unlevered net income below:(Round to the nearest dollar.)

		Year 0
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 3

(Round to the nearest dollar.)

		Year 1
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 4

(Round to the nearest dollar.)

		Year 2
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 5

(Round to the nearest dollar.)

		Year 3
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 6

(Round to the nearest dollar.)

		Year 4
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 7

b. Recalculate unlevered net income assuming, in addition, that each year

20%

of sales comes from customers who would have purchased an existing Linksys router for

$100/unit

and that this router costs

$60/unit

to manufacture.

Part 8

Calculate the yearly unlevered net income below: (Round to the nearest dollar.)

		Year 0
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 9

(Round to the nearest dollar.)

		Year 1
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 10

(Round to the nearest dollar.)

		Year 2
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 11

(Round to the nearest dollar.)

		Year 3
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

Part 12

(Round to the nearest dollar.)

		Year 4
Incremental Earnings Forecast ($000)
Sales	$
Cost of Goods Sold	$
Gross Profits	$
Selling, General, and Admin.	$
Research and Development	$
Depreciation	$
EBIT	$
Income Tax at 40%	$
Unlevered Net Income	$

image text in transcribed

Udld laore asp el.) Year 0 1 2 3 4 5 0 Incremental Earnings Forecast ($000) 1 Sales 2 Cost of Goods Sold 3 Gross Profits 4 Selling, General, and Administrative 26,000 26,000 26,000 26,000 (11,000) (11,000) (11,000) (11,000) 15,000 15,000 15,000 15,000 (2,800) (2,800) (2,800) (2,800)