Question $1.$ Linksys is considering a new project to develop a

wireless home networking appliance, HomeNet. The project

involves the following:

$$ Sales Forecast: $60,000$ units per year

$$ Wholesale Price per Unit: $$280$

$$ Cost of Goods Sold $($COGS$)$: $$120$ per unit

$$ Annual SG&A Expenses: $$3,200,000$

$$ Equipment Cost: $$8$ million, depreciated over $4$ years

using the straight$-$line method

$$ Marginal Tax Rate: $35\%$

Suppose that to streamline the sales and marketing sta$\backslash$ for the

HomeNet project, Linksys will use an already owned small o$\backslash$ice

space that could alternatively be rented for $$1\mathrm{.}2$ million a year.

Adjust the Free Cash Flow $($FCF$)$ calculation for the first year to

account for the opportunity cost of the foregone rent. Does this

a$\backslash$ect the decision to proceed with the project?

Question $2.$ Suppose that upon rolling out HomeNet, sales of

Linksys brand routers decline by $20,000$ units per year. The routers

were being sold for an average price of $$70.$

Calculate the impact of this cannibalization on the Free Cash Flow

$($FCF$)$ for the first year. How does this a$\backslash$ect the NPV of the project?