Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 100% bonus depreciation (all the depreciation expense occurs when the asset is put into use, in this case immediately). a. Keeping the other assumptions that underlie Table 8.1 (3) the same, recalculate unlevered net income (that is, reproduce Table 8.1 under the new assumptions, and note that we are ignoring cannibalization and lost rent) b. Recalculate unlevered net income including lost rent and assuming 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 Year 0 1 2 3 5 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) 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 7 EBIT 8 Income Tax at 20% 9 Unlevered Net Income (15,000) (15,000) 3,000 (12,000) (1,500) 10,700 (2,140) 8,560 (1,500) 10,700 (2,140) 8,560 (1,500) 10,700 (2,140) 8,560 (1,500) 10,700 (2,140) 8,560 (1,500) (1,500) 300 (1.200)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Interpreting Company Reports And Accounts

Authors: Geoffrey Holmes, Alan Sugden, Paul Gee

10th Edition

0273711415, 9780273711414

More Books

Students also viewed these Accounting questions

Question

Differentiate the function. r(z) = 2-8 - 21/2 r'(z) =

Answered: 1 week ago

Question

=+a. Can the reader find the most important message?

Answered: 1 week ago