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 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 Free Cash Flow ($000) 10 Plus: Depreciation 11 Less: Capital Expenditures 12 Less: Increases in NWC 13 Free Cash Flow Net Present Value ($000) 1 Free Cash Flow 2 3 Discount Factor 4 PV of Free Cash Flow 5 NPV Project Cost of Capital 12% Year 49 9% 19% Year Year 0 (15,000) (7,500) 100% 20% 1 50 260 120 (2,800) 20% 2 99 148 236.60 215.31 97.20 78.73 (2,800) (2,800) 20% 20% 3 4 197 195.93 63.77 (2.800) 20% 0 1 2 3 4 13,000 23,423 31,866 38,598 (6,000) (9.623) (11,652) (12,563) 7,000 13,800 20,214 26,035 (2,800) (2.800) (2,800) (2,800) (15,000) (7,500) (22,500) 4,200 11,000 17,414 23,235 4,500 (840) (2.200) (3,483) (4,647) (18,000) 3,360 8,800 13,931 18,588 7,500 (7,500) (1,050) (1.020) (982) (874) (18,000) 2,310 7,780 12,969 17.714 0 1 2 3 4 (18,000) 2,310 7,780 12,989 17.714 1.000 0.8929 0.7972 0.7118 (18,000) 2,063 6,202 9,231 12,970 5 5 3,906 5 3,906 0.6355 0.5674 11,257 2,216 You are evaluating the HomeNet project under the following assumptions: new tax laws allow 100% bonus depreciation (all the depreciation expense, $7.5 million, occurs when the asset is put into use, in this case immediately). Research and development expenditures total $15 million in year 0 and selling, general, and administrative expenses are $2.8 million per year (assuming there is no cannibalization). 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 and assuming a cost of capital of 12%, calculate: a. The break-even annual sales price decline if: sales of 50,000 units in year 1 increase by 49,000 units per year over the life of the project, the year 1 sales price is $260/unit, and the year 1 cost of $120/unit decreases by 19% annually. See b. The break-even annual unit sales increase if: sales are 50,000 units in year 1, the year 1 sales price of $260/unit, decreases by 9% annually and the year 1 cost of $120/unit decreases by 19% annually. See (---) a. The break-even annual sales price decline if: sales of 50,000 units in year 1 increase by 49,000 units per year over the life of the project, the year 1 sales price is $260/unit, and the year 1 cost of $120/unit decreases by 19% annually. See The break-even annual sales price decline is %. (Round to two decimal places.) b. The break-even annual unit sales increase if: sales are 50,000 units in year 1, the year 1 sales price of $260/unit, decreases by 9% annually and the year 1 cost of $120/unit decreases by 19% annually. See The break-even annual unit sales increase is units. (Round to the nearest integer.)