After looking at the projections of the HomeNetproject, you decide that they are not realistic. It is unlikely that sales will be constant over thefour-year life of the project.Furthermore, other companies are likely to offer competingproducts, so the assumption that the sales price will remain constant is also likely to be optimistic.Finally, as production rampsup, you anticipate lower per unit production costs resulting from economies of scale.Therefore, you decide to redo the projections under the followingassumptions: Sales of 50,000 units in year 1 increasing by 51,000 units per year over the life of theproject, a year 1 sales price of $260/unit, decreasing by 11% annually and a year 1 cost of $120/unit decreasing by 21% annually. Inaddition, new tax laws allow you to depreciate theequipment, costing $ 7.5 million over three rather than five years usingstraight-line depreciation.

a. Keeping the underlying assumptions in Table 1 (located below) that research and development expenditures total $15 million in year 0 andselling, general, and administrative expenses are $ 2.8 million peryear, recalculate unlevered net income.(That is, reproduce Table 1 under the new assumptions given above. Note that we are ignoring cannibalization and lostrent.)

b. Recalculate unlevered net incomeassuming, inaddition, 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.

Data Table X ck on the Icon located on the top-right corner of the data table below in order to copy its contents into a eadsheet.) Year 0 2 3 4 5 remental Earnings Forecast ($000) Sales 26,000 26,000 26,000 26,000 Cost of Goods Sold (11,000) (11,000) (11,000) (11,000) Gross Profits 15,000 15,000 15,000 15,000 Selling, General, and Administrative (2,800) (2,800) (2,800) (2,800) Research and Development (15,000) Depreciation (1,500) (1,500) (1,500) (1,500) (1,500 EBIT (15,000) 10,700 10,700 10,700 10,700 (1,500 Income Tax at 40% 6,000 (4,280) (4,280) (4,280) (4,280) 60 Unlevered Net Income rone Print Done