A) Payback period
Years | Cashflow | Cumulative Cashflow |
0 | (10,000,000) | (10,000,000) |
1 | 5,000,000 | (5,000,000) |
2 | 2,000,000 | (3,000,000) |
3 | 2,000,000 | (1,000,000) |
4 | 2,000,000 | 1,000,000 |
5 | 2,000,000 | 3,000,000 |
Payback period= full year until recovery + unrecovered cost at the beginning of the last year / cash flow during last year
= 3 + 1,000,000 / 2,000,000
= 3 + 0.5
= 3.5 years
If the required Payback period is 2 , then we should not make the movie.
NPV of project is calculated using financial calculator.
Using : C0 = -10,000,000
C1 = 5,000,000. Frequency = 1
C2 = 2,000,000. Frequency = 4
I = 10%
Npv = Compute
Npv = $308,846.27
Yes, the Npv of movie is positive
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