You are evaluating the HomeNet project under the following assumptions: Sales of50,000units in year 1 increasing by54,000units per year over the life of the project, a year 1 sales price of$260/unit, decreasing by11% annually and a year 1 cost of$120/unit decreasing by21%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). Under these assumptions the unlevered net income is shown in the table: . Suppose that 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 for15% of annual sales, and payables are expected to be15% of the annual cost of goods sold. a. Calculate HomeNet's net working capital requirements (that is, reproduce Table 8.4 under the assumptions given).b. Calculate HomeNet's FCF (that is, reproduce Table 8.3 under the same assumptions).

a. Calculate HomeNet's net working capital requirements (that is, reproduce Table 8.4 under the assumptions given) The net working capital for year 1 is $ enter your response here. (Round to the nearest thousand dollars.)

Year 0 1 2 3 4 5 (15,000) (2,800) (2,800) ((2,800) (2,800) Operating Expenses ($000s) Hardware & Software Develop. Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Marginal Corporate Tax Rate (7,500) 33% 40% 33% 40% 33% 40% Calculation of HomeNet's Free Cash Flow (Including Cannibalization and Lost Rent) 3 Gross Profits 14000 4 Selling, General, and Administrative (3,000) 5 Research and Development (15,000) 6 Depreciation (1,500) 7 EBIT (15,000) 9500 8 Income Tax at 40% 6000 (3,800) 9 Unlevered Net Income (9,000) 5700 Free Cash Flow (000s) 10 Plus: Depreciation 1500 11 Less: Capital Expenditures (7,500) 12 Less: Increases in NWC (2,100) 13 Free Cash Flow (16,500) 5100 40% 40% Year 0 1 2 3 4 5 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 40% 9 Unlevered Net Income HomeNet's Net Working Capital Requirements 13000l 24066 32540 38860 (6,000) (9,859) (11,833)|(12,542) 7000 14207 20707 26318 (2,800)|(2,800) (2,800) (2,800) (15,000) - (2,500)|(2,500)|(2,500) (15,000) 1700 8907 15407 23518 6000 (680) ((3,563) (6,163) (9,407) (9,000) 1020 5344 9244 14111 Year 0 2 Net Working Capital Forecast ($000) 1 Cash Requirements 2 Inventory 3 Receivables (15% of sales) 4 Payable (15% of COGS) 5 Net Working Capital 3525 3525 (1,425) |(1,425) 2100 2100 Year 0 1 2 3 4 5 (15,000) (2,800) (2,800) ((2,800) (2,800) Operating Expenses ($000s) Hardware & Software Develop. Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Marginal Corporate Tax Rate (7,500) 33% 40% 33% 40% 33% 40% Calculation of HomeNet's Free Cash Flow (Including Cannibalization and Lost Rent) 3 Gross Profits 14000 4 Selling, General, and Administrative (3,000) 5 Research and Development (15,000) 6 Depreciation (1,500) 7 EBIT (15,000) 9500 8 Income Tax at 40% 6000 (3,800) 9 Unlevered Net Income (9,000) 5700 Free Cash Flow (000s) 10 Plus: Depreciation 1500 11 Less: Capital Expenditures (7,500) 12 Less: Increases in NWC (2,100) 13 Free Cash Flow (16,500) 5100 40% 40% Year 0 1 2 3 4 5 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 40% 9 Unlevered Net Income HomeNet's Net Working Capital Requirements 13000l 24066 32540 38860 (6,000) (9,859) (11,833)|(12,542) 7000 14207 20707 26318 (2,800)|(2,800) (2,800) (2,800) (15,000) - (2,500)|(2,500)|(2,500) (15,000) 1700 8907 15407 23518 6000 (680) ((3,563) (6,163) (9,407) (9,000) 1020 5344 9244 14111 Year 0 2 Net Working Capital Forecast ($000) 1 Cash Requirements 2 Inventory 3 Receivables (15% of sales) 4 Payable (15% of COGS) 5 Net Working Capital 3525 3525 (1,425) |(1,425) 2100 2100