Waldo Entertainment Products, Inc. is negotiating with Disney for the rights to manufacture and sell superhero-themed toys for a three-year period. At the end
of year 3, Waldo plans to liquidate the assets from the project. In addition to the facts and assumptions below, assume that working capital must be invested
immediately (in year 0) and will be fully recovered at the end of year 3, and that no incremental overhead expense will be incurred from the project. Note
that the difference between the selling price of the equipment at the end of year 3 and the equipment’s book value at the time of the sale is a taxable gain.
Identify the relevant cash flows, then calculate the investment’s net present value, benefit-cost ratio, and internal rate of return.
Sample Solution
