Answer question5 ,b only,Please write down each step in detail

a.

5. 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 10% annually and a year 1 cost of $120/unit decreasing by 20% annually. In addition, new tax laws allow you to depreciate the equipment over three rather than five years using straight- line depreciation. a. Keeping the other assumptions that underlie Table 8.1 the same, recalculate unlevered net income (that is, reproduce Table 8.1 under the new assumptions, and note that we are ignor- ing 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 Linksys router for $100/unit and that this router costs $60/unit to manufacture. TABLE 8.1 HomeNet's Incremental Earnings Forecast SPREADSHEET Year 0 1 2 3 4 5 Incremental Earnings Forecast ($000s) 1 Sales 2 Cost of Goods Sold 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) 3 Gross Profit - 4 Selling, General, and Administrative 5 Research and Development 6 Depreciation (1,500) (1,500) (1,500) 7 EBIT (1,500) (1,500) 10,700 10,700 10,700 10,700 (1,500) (4,280) (4,280) (4,280) (4,280) 6,420 6,420 6,420 6,420 8 Income Tax at 40% 600 9 Unlevered Net Income (900) (15,000) (15,000) 6,000 (9,000) Unlevered Net Income = EBITX (1-7) = (Revenues - Costs - Depreciation) x (1-7) Year 0 1 2 3 4 50 102 258 Units Sold (in 000s) (+52) Sale Price (-11%) 154 206 $ 206 $ 183 $ $ 260 $ 231 $ 95 $ 163 47 Production cost (-21%) $ 120 $ 75 $ 59 $ Incremental Earnings Forecast ($000s) 1 Sales (Unit sold x Sale Price) S 2 Cost of Goods Sold (Production cost x Sale price) $ 3 Gross Profit $13,000 $23,603 $ 31,716 $ 37,758 $ 42,087 -$ (6,000) $ (9,670) $(11,533) $(12,188) $ (12,059) $ 7,000 $13,933 $20,182 $25,570 $ 30,029 S (2,800) $ (2,800) $ (2,800) S (2,800) S (2,800) S 4 Selling, General, and Administrative S 5 Research and Development $ (15,000) $ $ $ $ S S 6 Depreciation S S (2,500) $ (2,500) $ (2,500) $ 7 EBIT $ 27,229 $9,108 $ 10,891 8 Income Tax at 40% $ (15,000) $ 1,700 $ 8,633 $ 14,882 $ 22,770 $ (6,000) $680 $3,453 $ 5,953 (9,000) S 1,020 S 5,180 S 8,929 9 Unlevered Net Income S S 13,662 S 16,337 5