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 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 22% annually. In addition, new tax laws allow 100% bonus depreciation (all the depreciation expense 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 the unlevered net income, net working capital requirements and free cash flow are shown in the 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.) dinruday and yea Lust 12 easy uy cc diuany, mauuu, Hew idA laws duw 1000 LUTUS depreciation (all the depreciation expense 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 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 case? C 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 $(Round to the nearest thousand dollars.) Free Cash Flow Table HomeNet Units Sales (000s) Sales Price (S/unit) Cost of Goods Sold ($/unit) Operating Expenses ($000s) Hardware & Software Develop Marketing & Technical Support Capital Expenditures Lab Equipment Depreciation Camarata Tav Data Year 0 1 2 3 4 5 50 50 100 150 200 10% 260 234.00 210.60 189.54 22% 120 93.60 73.01 56.95 (15,000) (2,800) (2,800) (2,800) (2,800) (7,500) 100% 20% 30% 20% 20% 20% X Free Cash Flow Table 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% 20% 20% 20% 20% 20% Year 0 1 2 3 4 5 13,000 (6,000) 7,000 (2,800) 23,400 31,590 37,908 (9,360) (10,952) (11,390) 14,040 20,638 (2,800) (2,800) (2,800) 26,518 D (15,000) (7,500) (22,500) 4.500. 4,200 11,240 17,838 23,718 (840) (2.248) (3.568) (4.744) Free Cash Flow Table 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 11,240 17,838 23,718 8 Income Tax at 20% 9 Unlevered Net Income 4,500 (18,000) (840) 3,360 (2,248) (3,568) (4,744) 8,992 14,270 18,974 Free Cash Flow (5000) 10 Plus: Depreciation 7,500 11 Less: Capital Expenditures (7,500) 12 Less: Increases in NWC (1,050) (1,056) (990) (881) 13 Free Cash Flow (18,000) 2,310 7,936 13,280 18,093 3,977 nd - X per atec go wn i nd