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What are the formulas used for the cells shaded in blue? Waldo Entertainment Products, Inc. is...

Question

What are the formulas used for the cells shaded in blue? Waldo Entertainment Products, Inc. is...

Waldo Entertainment Products, Inc. is negotiating with Disney for the rights to manufacture and sell superhero- themed toys f

What are the formulas used for the cells shaded in blue?

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. $45,000 $250,000 Facts and assumptions (s thousands) Marketing research costs, to date Initial cost of new equipment Expected life of equipment (years) Salvage value Depreciation method Selling price of new equipment at the end of year 3 Incremental annual sales (years 1 through 3) Incremental annual production costs Incremental annual selling and administrative expenses Current annual overhead costs Tax rate Working capital required Increase in A/R Increase in Inventories Increase in A/P Minimum required rate of return $50,000 Straight-line $150,000 $350,000 $170,000 $55,000 $200,000 25% $60,000 $40,000 $25,000 14% Year Investment in equipment Investment in net working capital

Answers

0 1 2 3
Investment in equipment -250000 145000
Investment in NWC -75000 75000

Investment in equipment = Initial cost since marketing cost is sunk cost

In year 3, there will be cash inflow of selling price- book value; Book value=Initial cost-depreciation

Depreciation = 3*(Initial cost-salevage)/useful life

Workings

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