You are evaluating the HomeNet project under the following assumptions: Sales of 50 comma 000 units in year 1 increasing by 53 comma 000 units per year over the life of the project, a year 1 sales price of $ 260/unit, decreasing by 10 % annually and a year 1 cost of $ 120/unit decreasing by 21 % annually. In addition, new tax laws allow 100% bonus depreciation (all the depreciation expense 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 $ 2.8 million per year (assuming there is no cannibalization). Under these assumptions the unlevered net income is shown in the table: LOADING.... Suppose that 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.
a. Calculate HomeNet's net working capital requirements (that is, reproduce Table 8.4 LOADING... under the assumptions given).
b. Calculate HomeNet's FCF (that is, reproduce Table 8.3 LOADING... under the same assumptions).
 

 

 

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Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 2 3 4 5 HomeNet Units Sales (000s) 53 Sales Price ($/unit) 10% Cost of Goods Sold ($/unit) Operating Expenses ($000s) 21% 50 103 156 209 260 234.00 210.60 189.54 120 94.80 74.89 59.16 Hardware & Software Develop. (15,000) Marketing & Technical Support (2,800) (2,800) (2,800) (2,800) Capital Expenditures Lab Equipment Depreciation (7,500) 100% Corporate Tax Rate 20% 20% 20% 20% 20% (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 2 3 4 5 Incremental Earnings Forecast ($000s) 1 Sales 13,000 2 Cost of Goods Sold (6,000) 3 Gross Profits 7,000 4 Selling, General, and Administrative (2,800) 24,102 32,854 39,614 (9,764) (11,683) (12,364) 14,338 21,171 27,250 (2,800) (2,800) (2,800) 5 Research and Development (15,000) 6 Depreciation 7 EBIT (7,500) (22,500) 4,200 8 Income Tax at 20% 4,500 (840) 11,538 (2,308) (3,674) 18,371 24,450 (4,890) 9 Unlevered Net Income (18,000) 3,360 9,230 14,697 19,560 Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 2 3 4 5 HomeNet Units Sales (000s) 53 Sales Price ($/unit) 10% Cost of Goods Sold ($/unit) Operating Expenses ($000s) 21% 50 103 156 209 260 234.00 210.60 189.54 120 94.80 74.89 59.16 Hardware & Software Develop. (15,000) Marketing & Technical Support (2,800) (2,800) (2,800) (2,800) Capital Expenditures Lab Equipment Depreciation (7,500) 100% Corporate Tax Rate 20% 20% 20% 20% 20% (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 2 3 4 5 Incremental Earnings Forecast ($000s) 1 Sales 13,000 2 Cost of Goods Sold (6,000) 3 Gross Profits 7,000 4 Selling, General, and Administrative (2,800) 24,102 32,854 39,614 (9,764) (11,683) (12,364) 14,338 21,171 27,250 (2,800) (2,800) (2,800) 5 Research and Development (15,000) 6 Depreciation 7 EBIT (7,500) (22,500) 4,200 8 Income Tax at 20% 4,500 (840) 11,538 (2,308) (3,674) 18,371 24,450 (4,890) 9 Unlevered Net Income (18,000) 3,360 9,230 14,697 19,560