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In: Finance
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?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Suppose that Linksys is considering the development of a wireless home networking appliance, called HomeNet. Based...
Suppose that Linksys is considering the development of a
wireless home networking appliance, called HomeNet. Based on
extensive marketing surveys, the sales forecast for HomeNet is
65,000 units per year. Given the pace of technological change,
Linksys expects the product will have a five-year life and an
expected wholesale price of $250 (the price Linksys will receive
from stores). Actual production will be outsourced at a cost
(including packaging) of $135 per unit.
Linksys must also establish a new lab...
Suppose that Linksys is considering the development of a wireless home networking appliance, called HomeNet. Based...
Suppose that Linksys is considering the development of a
wireless home networking appliance, called HomeNet. Based on
extensive marketing surveys, the sales forecast for HomeNet is
65,000 units per year. Given the pace of technological change,
Linksys expects the product will have a five-year life and an
expected wholesale price of $250 (the price Linksys will receive
from stores). Actual production will be outsourced at a cost
(including packaging) of $135 per unit.
Linksys must also establish a new lab...
Suppose that Linksys is considering the development of a wireless home networking appliance, called HomeNet, that...
Suppose that Linksys is considering the development of a
wireless home networking appliance, called HomeNet, that will
provide both the hardware and the software necessary to run an
entire home from any Internet connection. Linksys's receivables
are 14.2% of sales and its payables are 15.8% of COGS. Forecast the
required investment in net working capital for HomeNet assuming
that sales and cost of goods sold (COGS) will be as follows:
Year
0
1
2
3
4
Sales
$23,578
$26,463
$23,579...
Suppose that Linksys is considering the development of a wireless home networking appliance, called HomeNet, that...
Suppose that Linksys is considering the development of a
wireless home networking appliance, called HomeNet, that will
provide both the hardware and the software necessary to run an
entire home from any Internet connection. Linksys's receivables
are 14.1 % of sales and its payables are 15.9% of COGS. Forecast
the required investment in net working capital for HomeNet assuming
that sales and cost of goods sold (COGS) will be as follows:
Year
0
1
2
3
4
Sales
$23,339
$26,341...
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Suppose the home firm is considering whether to enter the foreign market. Assume that the home...
Suppose the home firm is considering whether to enter the
foreign market. Assume
that the home firm has the following costs and demand:
Fixed costs = $400
Marginal costs = $13 per unit
Local price = $25
Local quantity = 20
Export price = $26
Export quantity = 20
a. What is the firm’s average cost from selling only in the
local market?
b. Calculate the firm’s profit from selling (i) just to Home’s
market; (ii) to both markets.
c....
National Electric Company (NEC) is considering to develop and market a new appliance using microprocessor technology....
National Electric Company (NEC) is considering to develop and
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In late 1993, the Weyerhauser Corporation was considering the use of a so-called “Industrial Development Bond”...
In late 1993, the Weyerhauser Corporation was considering the
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Maryland Home and Community-Based Services (MHCBS) is considering a major expansion that will enable it to...
Maryland Home and Community-Based Services (MHCBS) is
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Amazon is the market leader with roughly 70% of smart home product sales. Its product development...
Amazon is the market leader with roughly 70% of smart home
product sales. Its product development strategy is establishing a
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For Discussion
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