Linksys is considering a new product called "HomeNet". The sales forecast for HomeNet is 1,000 units per year at an expe

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Linksys Is Considering A New Product Called Homenet The Sales Forecast For Homenet Is 1 000 Units Per Year At An Expe 1 (112.63 KiB) Viewed 37 times

Linksys is considering a new product called "HomeNet". The sales forecast for HomeNet is 1,000 units per year at an expected unit price of $300. This new project is expected to have a three-year life. Actual production will be outsourced at a cost of $200 per unit. This new project requires an upfront investment of $75,000 for a new equipment which will be depreciated according to the straight-line depreciation method. Linksys expects to spend $3,000 per year on marketing and support for this product. The marginal tax rate is 30%, and the appropriate cost of capital is 10%. Suppose HomeNet's new laboratory will be housed in warehouse space that Linksys would have otherwise rented out for $2,000 per year during year 1 through year 3. Lastly, suppose that receivables related to HomeNet are expected to be 20% of annual sales, and payables are expected to be 20% of annual costs of goods sold. Present your answers via tabulation. a. What are the unlevered net income for year 0 through 4? 0 b. What are the free cash flows for year 0 through 4? c. What are the NPV? What is the decision on the HomeNet project?