You are evaluating the HomeNet project under the following assumptions: Sales of 50,000 units in year 1 increasing by 47,000 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 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). 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 for 15% of annual sales, and payables are expected to be 15% 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).

HomeNet's Net Working Capital Requirements
		Year	0	1	2	3	4	5
Net Working Capital Forecast ($000)
1	Cash Requirements		-	-	-	-	-	-
2	Inventory		-	-	-	-	-	-
3	Receivables (15% of sales)		-	3,525	3,525	3,525	3,525	-
4	Payable (15% of COGS)		-	(1,425)	(1,425)	(1,425)	(1,425)	-
5	Net Working Capital		-	2,100	2,100	2,100	2,100	-

Calculation of HomeNet's Free Cash Flow
		Year	0	1	2	3	4	5
Incremental Earnings Forecast ($000)
1	Sales		-	23,500	23,500	23,500	23,500	-
2	Cost of Goods Sold		-	(9,500)	(9,500)	(9,500)	(9,500)	-
3	Gross Profits		-	14,000	14,000	14,000	14,000	-
4	Selling, General, and Administrative		-	(3,000)	(3,000)	(3,000)	(3,000)	-
5	Research and Development		(15,000)	-	-	-	-	-
6	Depreciation		-	(1,500)	(1,500)	(1,500)	(1,500)	(1,500)
7	EBIT		(15,000)	9,500	9,500	9,500	9,500	(1,500)
8	Income Tax at 20%		3,000	(1,900)	(1,900)	(1,900)	(1,900)	300
9	Unlevered Net Income		(12,000)	7,600	7,600	7,600	7,600	(1,200)
Free Cash Flow (000s)
10	Plus: Depreciation		-	1,500	1,500	1,500	1,500	1,500
11	Less: Capital Expenditures		(7,500)	-	-	-	-	-
12	Less: Increases in NWC		-	(2,100)	-	-	-	2,100
13	Free Cash Flow		(19,500)	7,000	9,100	9,100	9,100	2,400