Toy Pacific, Inc. $($TPI$)$ designs, produces, markets, sells, and distributes toys and related products, kid's indoor and outdoor furniture, and other consumer products worldwide. The company offers action figures and accessories, based on licensed characters from popular entertainment brands as well as toy vehicles and accessories, dolls and accessories, and infant and pre$-$school products.

The company also provides dress$-$up$,$ pretend play, and novelty products for boys and girls based on licensed brands and entertainment properties, as well as on its own proprietary brands. In addition, it offers Halloween and everyday costumes for various ages based on licensed and proprietary non$-$licensed brands, and related Halloween accessories. The company also makes and sells outdoor activity toys, junior sports toys, including hyper$-$charged balls, sport sets, and board games.

The company sells its products through in$-$house sales staff and independent sales representatives to toy and mass$-$market retail chain stores, department stores, office supply stores, drug and grocery store chains, club stores, value$-$oriented dollar stores, toy specialty stores, and wholesalers. Toy Pacific, Inc. was incorporated in $1995$ and is headquartered in Santa Monica, California.

For the past $10$ years, TPI's most popular and best$-$selling products have been action figures and play sets based on characters from World Wrestling Entertainment $($WWE$).|$

TPI is considering a partnership proposal from a new sports entertainment company, Imaginary Fight Club $($IFC$)$ whereby TPI would produce and sell toys and other products based on IFC athletes and characters for the next $5$ years. TPI's management team is excited about the proposal as it expects IFC popularity to increase significantly in the next $3-5$ years and believes the partnership could represent a significant source of growth for the company.

In order to secure the partnership TPI would need to pay ICF a one time, up$-$front licensing fee of $$20$ million. TPI can amortize the licensing fee over the next $5$ years on

a straight$-$line basis. Additionally, TPI would need to pay IFC a royalty each year equal to $15\%$ of all IFC related product sales for the next $5$ years.

In order to help evaluate the opportunity, the CEO of TPI has hired an outside consulting firm to study and estimate the potential size of the market for ICF toys. The cost of the consulting study is $$500,000$ and this cost will be incurred whether or not the project moves forward.

The consulting firm's findings confirm that IFC is$,$ in fact, a very popular brand and that its market, while relatively small currently, is expected to grow rapidly over the next several years. Recent product sales volumes and pricing for IFC products are summarized below in table #$1.$

$\backslash$table$[[$Table $1$:$,2020,\backslash$table$[[$Historical$],[2021]],2022],[\backslash$table$[[$Units$],[$Action Figures$],[$Play Sets$]],\backslash$table$[[250,000],[20,000]],\backslash$table$[[375,000],[30,000]],\backslash$table$[[560,000],[44,800]]],[\backslash$table$[[$Price per Unit$],[$Action Figures$],[$Playsets$]],\backslash$table$[[$$$15\mathrm{.}95$