You are evaluating the HomeNet project under the following assumptions:

new tax laws allow $100\%$ bonus depreciation $($all the depreciation expense,

$$7\mathrm{.}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\mathrm{.}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

the following:

a$.$ The break$-$even annual sales price decline if: sales of $50,000$ units in year $1$ increase by $48,000$ 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 $18\%$ annually.

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 $18\%$ annually.