Cisco is considering the development of a wireless home networking appliance, called HomeNet. The company expects to sell $340000$ units per year over the project's life at an expected wholesale price of $160.$ Actual production will be outsourced at a cost of $96$ per unit. Additionally, the company will spend $$22000$ in interest expense each year towards financing the project. In year $1,$ the firm must increase its accounts receivable by $$891000,$ which will return to regular levels at the end of the project. The company spent $$256000$ last year on software to develop the router. $$117\mathrm{.}7$ million of new equipment will be purchased and then depreciated using the straight$-$line method over a $10-$year life. They expect the market value of the equipment to depreciate at $6\mathrm{.}2\%$ per year. The project is expected to end in year $6.$ The current tax rate is $21\%.$ Use this rate for both income tax rate and the capital gains rate. The WACC for the company is $15\mathrm{.}9\%.$What is the NPV of the project?

 

  

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the HomeNet project we need to calculate the cash flows fo... View the full answer