Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

need help solving the following problems. The problem is the first attached image and the second image is the table required to solve the problem.

need help solving the following problems. The problem is the first attached image and the second image is the table required to solve the problem.

image text in transcribedimage text in transcribed
HomeNet Units Sales (0005) Sales Price ($Iunit) Cost of Goods Sold (Slunit) Operating Expenses ($000s) Hardware & Software Develop. Marketing 3 Technical Support Capital Expenditures Lab Equipment Depreciation Marginal Corporate Tax Rate Incremental Earnings Forecast ($000) 1 CDNQGAWN 9 Sales Cost of Goods Sold Gross Prots Selling, General, and Administrative Research and Development Depreciation EBIT Income Tax at 40% Unlevered Net Income Free Cash Flow ($000) 10 Plus: Depreciation 11 Less: Capital Expenditures 12 Less: Increases in NWC 13 Free Cash Flow Year 0 51 11% 21% (15,000) (7,500) 40% Year 0 (15,000) (15,000) 5,000 (9,000) (7,500) (15,500) 50 250 120 (2,300) 33% 40% 13,000 (5,000) 7,000 (2,300) (2,500) 1,700 (530) 1,020 2,500 (1,050) 2,470 101 231.40 94.80 (2,300) 33% 40% 23,371 (9,575) 13,795 (2,300) (2,500) 3,495 (3,393) 5,093 2,500 (1 ,020) 5,573 152 205.95 74.89 (2,300) 33% 40% 31,304 (11 ,333) 19,921 (2,300) (2,500) 14,521 (5,343) 3,773 2,500 (919) 10,354 203 183.30 59.15 (2,300) 40% 4 37,210 (12,009) 25,201 (2,300) 22,401 (3,950) 13,441 (792) 12,549 3,781 You are evaluating the HomeNet project under the following assumptions: Sales of 50,000 units in year 1 increasing by 51,000 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 you to depreciate the equipment, costing $7.5 million, over three years using straight-line depreciation. 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 the unlevered net income, net working capital requirements and free cash ow are shown in the Table a 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 case

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

MATLAB An Introduction With Applications

Authors: Amos Gilat

6th Edition

111938513X, 978-1119385134

More Books

Students also viewed these Finance questions

Question

Do not come to the conclusion too quickly

Answered: 1 week ago

Question

Engage everyone in the dialogue

Answered: 1 week ago