Answer A and B
Homework: M3: Chapter 8 Homework Save Score: 0 of 1 pt 11 of 12 (0 complete) HW Score: 0%, 0 of 12 pts B8-22 (book/static) Question Help You are evaluating the HomeNet project under the following assumptions: new tax laws allow 100% bonus depreciation (all the depreciation expense, $120 million, occurs when the asset is put into use, in this case immediately). Sales of 50,000 units in year 1 $120/unit decreasing by 20% annually. In addit easing by 50,000 units per year over the life of the project, a year 1 sales price of $260/unit, decreasing by 10% annually and a year 1 cost of ciation (all the depreciation expense et is put into use, in this case immediately). Research and develo enditures total $15 million in year 0 and selling, general, and adm ises are $2.8 milli ibalization). 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 the unlevered net income, net working capital requirements and free cash flow are shown in the Table . Using the FCF projections given: a. Calculate the NPV of the HomeNet project assuming a cost of capital of 10%, 12% and 14%. b. What is the IRR of the project in this a. Calculate the NPV of the HomeNet project assuming a cost of capital of 10%, 12% and 14%. The NPV of the FCF's of the HomeNet project assuming a cost of capital of 10% is $ . (Round to the nearest thousand dollars.) i Free Cash Flow Table - X Year 0 1 2 3 5 HomeNet Units Sales (000s) 50 50 100 150 200 Sales Price ($/unit) 10% 260 234.00 210.60 189.54 Cost of Goods Sold ($/unit) 20% 120 96.00 76.80 61.44 Operating Expenses ($000s) Hardware & Software Develop. (15,000) Marketing & Technical Support (2,800) (2,800) (2,800) (2,800) Capital Expenditures Lab Equipment 7,500) Depreciation 100% Corporate Tax Rate 20% 20% 20% 20% 20% Year 5 Incremental Earnings Forecast ($000) 1 Sales 13,000 23,400 31,590 37,908 2 Cost of Goods Sold (6,000) (9,600) (11,520) (12,288) Gross Profits 7,000 13,800 20,070 25,620 4 Selling, General, and Administrative (2,800) (2,800) (2,800) (2,800) 5 Research and Development (15,000) 6 Depreciation (7,500) 7 EBIT 22,500 4,200 11,000 17,270 22,820 8 Income Tax at 20% 4,500 (840) (2,200) (3,454) 4,564) 9 Unlevered Net Income (18,000) 3,360 8,800 13,816 18,256 Free Cash Flow ($000) 10 Plus: Depreciation 7,500 11 Less: Capital Expenditures (7,500) 12 Less: Increases in NWC (1,050) (1,020) (941) (832) 13 Free Cash Flow (18,000) 2,310 7,780 12,875 17,424 3,843 Print Done
