Calculation of HomeNet's Free Cash Flow (Including Cannibalization and Lost Rent), Using Revision, assume SG&A expenses paid in Cash to Parent

1. What is the IRR?

2.What is the NPV when cost of capital is 12%?

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Year 0 1 2 3 4 5 Incremental Earnings Forecast ($000s) 1 Sales 2 Cost of Goods Sold 3 Gross Profit 4 Selling, General, and Administrative 23,500 23,500 23,500 23,500 (9,500) (9,500) (9,500) (9,500) 14,000 14,000 14,000 14,000 (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) 8 Income Tax at 40% 6,000 9 Unlevered Net Income (9,000) 9,500 9,500 (3,800) (3,800) 5,700 5,700 9,500 9,500 (1,500) (3,800) (3,800) 600 5,700 5,700 (900) 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 (16,500) 5,100 7,200 7,200 7,200 2,700 Year 0 1 2 3 4 5 Incremental Earnings Forecast ($000s) 1 Sales 2 Cost of Goods Sold 3 Gross Profit 4 Selling, General, and Administrative 23,500 23,500 23,500 23,500 (9,500) (9,500) (9,500) (9,500) 14,000 14,000 14,000 14,000 (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) 8 Income Tax at 40% 6,000 9 Unlevered Net Income (9,000) 9,500 9,500 (3,800) (3,800) 5,700 5,700 9,500 9,500 (1,500) (3,800) (3,800) 600 5,700 5,700 (900) 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 (16,500) 5,100 7,200 7,200 7,200 2,700