Q$1$a$.$ 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 figures of merit listed below.

Facts and assumptions $($$ thousands$)$

Sales

Cost of sales

Gross profit

Selling and administrative expenses

Operating income

Depreciation

Income before tax

Tax

Income after tax

After$-$tax cash flow

Free cash flow

Project NPV $($baseline estimate$)$

Use the NPV $0$ function to calculate this value.

Benefit$-$cost ratio

Internal rate of retum

Equivalent annual benefit

FV of Year $1-3$ cash flows in Year $3$

FV of Year $0$ cash flow in Year $3$

NPV $($using the future values calculated in Rows

Book value at sale

Market value at sale

Taxable gain $($loss$)$

Net proceeds at sale

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