Toy Story, Toy Venture ToyStory Media is a movie company that is considering entering the toy…

Toy Story, Toy Venture ToyStory Media is a movie company that is considering entering the toy business in a short term (3-year) venture. The company has completed a market testing that suggests that there is a market for toys. The testing costs $10 million. The toy venture will have an initial capital investment of S45 million and you have been provided with the following projections on the venture (in millions) Year1 Year2 Year 3 S65 $12 $22 S31 S50 S15 $20 $15 S70 S8 S26 S36 Revenues Depreciation Other Operating Expenses erating Income Non-cash working capital is expected to be 10% of revenues, with the investment being made at the end of each year At the end of year 3, you can expect to sell all of the project’s remaining assets at book value. The cost of capital (or discount rate) for the toy project is 9% and the cost of capital (or discount rate) for the movie business is 12%. The marginal tax rate is 40%. a) Estimate the incremental after-tax operating cash flows each year for the life of the project. (10 marks) b) What is the NPV of this investment? (5 marks) c) Assume that the toy business will generate side benefits for the movie business, increasing after-tax cash flows from that business by $7.5 million/year, each year for the next 3 years. What effect does this have on your NPV?