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 49,000 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 (E) 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.

You are in the HomeNet project under the following spion Sales of 50.000 units in your tong by 50.000 unts per year over hele of the prodha yew 1e price of $260, cong by 10% annually and a year 1 cost of $120 unit decreasingly 10% annually. In addition, wax laws wow 100% bonus deprecational the depreciation express whesis put into in immediately Resoarch and development pros $15 milion in your und seine general and rative expension per your assuming there is no cibution Under wwwptions the unleveredne income whown in the suppose that Home will have no incremental hornvertory requires products will be shipped directly to the nato customers. However, recoberted to Home are expected to count for 15 of award poble espected to be of the con good accuato Homer's networking at that is producto 4 under the b. Cat Home FCF mais, reproductile 3 under the Data Table N 3 4 5 (Click on the following icon in order to copy its contents into a spreadsheet.) HomeNet's Net Working Capital Requirements Year 0 Net Working Capital Forecast ($000) 1 Cash Requirements 2 Inventory 3 Receivables (15% of sales) 4 Payable (15% of COGS) 5 Net Working Capital 3,525 (1.425) 2.100 3,525 3,525 3,525 - (1.425) (1,425) (1,425). 2,100 2,100 2,100 - Data Table ct 20/4 nen e is ated apit sa lea bct Year 0 2 3 4 5 epi 23,500 (9.500) 14,000 (3,000) 23,500 (9,500) 14.000 (3,000) 23,500 (9,500) 14,000 (3,000) 23,500 (9,500) 14,000 (3.000) apit (15,000) Incremental Earnings Forecast (5000) 1 Sales 2 Cost of Goods Sold 3 Gross Profits 4 Selling, General, and Administrative 5 Research and Development 6 Depreciation 7 EBIT 8 Income Tax at 20 9 Unlevered Net Income Free Cash Flow (000s) 10 Plus: Depreciation 11 Less: Capital Expenditures 12 Less: Increases in NWC 13 Free Cash Flow (15,000) 3,000 (12,000) (1,500) 9,500 (1,900) 7,600 (1,500) 9,500 (1,900) 7,600 (1,500) (1,500) 9,500 9,500 (1,900) (1.900) 7,600 7,600 (1,500) (1,500) 300 (1,200) 1,500 1,500 1,500 1,500 1,500 (7,500) 2.100 (2.100) 7,000 (19,500) 9,100 9,100 9,100 2.400 ar Print Done Year 2 3 4 ch 50 10% 19% 50 260 120 100 234.00 97.20 150 210.60 78.73 200 189.54 63.77 HomeNet Units Sales (000s) Sales Price (S/unit) Cost of Goods Sold ($/unit) Operating Expenses ($000s) Hardware & Software Develop. Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Corporate Tax Rate (15,000) (2,800) (2.800) (2,800) (2,800) (7,500) 100% 20% 20% 20% 20% 20% Antha folland inn in arrier to any ite cantante into a shreadsheet Year 0 1 2 3 4 5 Incremental Earnings Forecast (5000) 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 13,000 (6.000) 7.000 (2,800) 23,400 (9.720) 13,680 (2.800) 31,590 37,908 (11,810) (12,754) 19,780 25,154 (2,800) (2,800) - (15,000) (7.500) (22,500) 4,500 (18,000) 4.200 (840) 3,360 10,880 (2,176) 8,704 16,980 (3,396) 13,584 22,354 (4,471) 17,883