Question

You are considering making a movie. The movie is expected to cost $10.5 million upfront and take a year to make. After that, it is expected to make $4.1 million in the first year it is released (end of year 2) and $1.9 million for the following four years (end of years 3 through 6). What is the payback period of this investment? If you require a payback period of two years, will you make the movie? What is the NPV of the movie if the cost of capital is 10.6%? According to the NPV rule, should you make this movie? What is the payback period of this investment? The payback period is 6 years. (Round up to nearest integer.) Based on the payback period requirement, would you make this movie? No . (Select from the drop-down menu.) What is the NPV of the movie if the cost of capital is 10.6%? The NPV is $ million. (Round to three decimal places.)

Answer 1

1.
=2+(10.5-4.1)/1.9
=5.36842

=6 years

2.
No

3.
=-10.5+4.1/1.106^2+1.9/1.106^3+1.9/1.106^4+1.9/1.106^5+1.9/1.106^6
=-2.28789