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P 3 ( 5 points ) Terrific Toys, a large profitable producer of toys and games, is considering the introduction of a new toy called

P3(5 points) Terrific Toys, a large profitable producer of toys and games, is considering the introduction of a new toy called Gooey Guck that it hopes will be a new fad. It is likely to be popular for three years, but after that, consumers will tire of the new toy. It forecasts that it can sell 3 million units next year and 2 million units in the second year, and 1 million units in the third year.Machinery must be purchased immediately at a cost of $15 million (which can be depreciated for tax purposes straight-line over three years). After three years the machinery will be disposed and there will be no salvage value.The cost of manufacturing Gooey Guck will be $2.5 per unit (primarily labour and raw materials), and they hope to sell it for $6 per unit.The corporate tax rate is 20%. There is no inflation. The appropriate discount rate is 10%.What is the NPV of introducing Gooey Guck? Should they make the investment? Show all your work.

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