Reference no: EM13865696
You are evaluating the HomeNet project under the following assumptions: Sales of 50,000 units in year 1 increasing by 53,000 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 flow are shown in the Table 1707 . Using the FCF projections given:
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 $__.
The NPV of the FCF's of the HomeNet project assuming a cost of capital of 12% is __.
The ICPV of the FCF's of the HomeNet project assuming a cost of capital of 14% is $__.
b. What is the IRR of the project in this case?
The IRR is ____%.
|
Year 0
|
1
|
2
|
3
|
4
|
5
|
|
HomeNet
|
|
|
|
|
|
|
|
|
Units Sales (000s)
|
|
53
|
50
|
103
|
156
|
209
|
|
|
Sales Price (S unit)
|
|
11%
|
260
|
231.40
|
205.95
|
183.30
|
|
|
Cost of Goods Sold (S/unit)
|
|
21%
|
120
|
94.80
|
74.89
|
59.16
|
|
|
Operating Expenses ($000s)
|
|
|
|
|
|
|
|
|
Hardware & Software Develop.
|
|
(15,000)
|
|
|
|
|
|
|
Marketing & Technical Support
|
|
|
(2,800)
|
(2,800)
|
(2,800)
|
(2,800)
|
-
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
Lab Equipment
|
|
(7,500)
|
|
|
|
|
|
|
Depreciation
|
|
|
33%
|
33%
|
33%
|
|
|
|
Marginal Corporate Tax Rate
|
|
40%
|
40%
|
40%
|
40%
|
40%
|
|
|
Year
|
0
|
1
|
2
|
3
|
4
|
5
|
|
Incremental Earnings Forecast ($000)
1 Sales
|
|
|
13,000
|
23,834
|
32,128
|
38,310
|
|
|
2 Cost of Goods Sold
|
|
|
(6,000)
|
(9,764)
|
(11,683)
|
(12,364)
|
|
|
3 Gross Profits
|
|
|
7,000
|
14,070
|
20,445
|
25,946
|
|
|
4 Selling, General, and Administrative
|
|
|
(2,800)
|
(2,800)
|
(2,800)
|
(2,800)
|
|
|
5 Research and Development
|
|
(15,000)
|
|
|
|
-
|
|
|
6 Depreciation
|
|
|
(2,500)
|
(2,500)
|
(2,500)
|
-
|
|
|
7 EBIT
|
|
(15,000)
|
1,700
|
3,770
|
15,145
|
23,146
|
|
|
8 Income Tax at 40%
|
|
6,000
|
(680)
|
(3,508)
|
(6,058)
|
(9,258)
|
|
|
9 Unlevered Net Income
|
|
(9,000)
|
1,020
|
5,262
|
9,087
|
13,888
|
|
|
Free Cash Flow ($000)
|
|
|
|
|
|
|
|
|
10 Plus: Depreciation
|
|
|
2,500
|
2,500
|
2,500
|
-
|
|
|
11 Less: Capital Expenditures
|
|
(7,500)
|
-
|
|
|
|
|
|
12 Less: Increases in NWC
|
|
|
(1,050)
|
(1,060)
|
(957)
|
(325)
|
|
|
13 Free Cash Flow
|
|
(16,500)
|
2,470
|
6,702
|
10,630
|
13,063
|
3,892
|
|
Explain the culture of law enforcement
: Compose a 1-2 page Essay discussing how one's disposition and manner contributes to building a rapport with colleagues. Be sure to address the prompts below: Describe the culture of law enforcement. How does effective, appropriate communication and..
|
|
Conducting an organizational assessment
: Conducting an organizational assessment
|
|
Tory of the sadhu from your perspective?
: McCoy concludes that the lesson of the sadhu is that in a complex corporate situation the individual requires and deserves the support of the group When people cannot find such support in their organizations, they don’t know how to act What support i..
|
|
The method of sections
: 1. Determine, by THE METHOD OF SECTIONS, the forces in members AC, BC and BD. 2. Determine, by THE METHOD OF JOINTS, the forces in members FH, HI, GI, and GH.
|
|
Calculate the npv of the homenet project
: Calculate the NPV of the HomeNet project assuming a cost of capital of 10%, 12% and 14% and NPV of the FCF's of the HomeNet project assuming a cost of capital of 10% is $__.
|
|
Is it fair to excuse the criminal responsibility of someone
: Is it fair to excuse the criminal responsibility of someone who acted under an irresistible impulse
|
|
Explain how the debt capacity of the governmental entity
: Explain how the debt capacity of the governmental entity is determined
|
|
Indicate whether operating investing activities are afected
: Motif Furniture is an Austin- based furniture company. For each of the following first- quarter transactions, indicate whether operating (O), investing (I), or financing activities (F) are affected and whether the effect is a cash inflow (1) or outfl..
|
|
Community relating to current homeland security hazards
: Determine which agencies will be involved in your larger group
|