Cisco is considering the development of a wireless home networking appliance, called HomeNet. The company expects to sell 300000 units per year over the project's life atan expected wholesale price of 170. Actual production will be outsourced at a cost of 93 per unit. Additionally, the company will spend $21000 in interest expense each yeartowards financing the project. In year 1, the firm must increase its accounts receivable by $854000, which will return to regular levels at the end of the project. The companyspent $285000 last year on software to develop the router. $101.8 million of new equipment will be purchased and then depreciated using the straight-line method over a10-year life. They expect the market value of the equipment to depreciate at 2.8% per year. The project is expected to end in year 7. The current tax rate is 21%. Use this ratefor both income tax rate and the capital gains rate. The WACC for the company is 12.4%.áWhat is the NPV of the project?$21,604,034.24$21,529,272.26$21,227,249.17$22,370,037.05

In the NPV analysis, we compute the present value of all future benefits. This present value is then…

Answered: Cisco is considering the development of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 8P

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