Cisco is considering the development of a wireless home networking appliance, called HomeNet. Based on market...

Cisco is considering the development of a wireless home networking appliance, called HomeNet. Based on market testing (which the company spent $350,000 on), 225,000 units are expected to be sold per year over the project’s four-year life at an expected wholesale price of $70 per unit. Actual production will be outsourced at a cost of $40 per unit. $8.5 million of new equipment will be purchased and then depreciated using the straight-line method over a 27-year life. They expect the market value of the equipment to depreciate at 2% per year, at which point the company will sell the equipment. Cisco will pay $125,000 in interest expense on debt each year as a result of the project. In year1, the firm must increase its inventory by $50,000, which will return to regular levels at the end of the project. The tax rate is 21%. The WACC for the company is 7.5%.

What is the free cash flow in Year 1?

What is the free cash flow associated with the sale of the equipment in Year 4?

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jeff jeffy answered 1 year ago

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