Question

You are considering making a movie. The movie is expected to cost $10.7 million up front and take a year to produce. After that, it is expected to make $4.9 million in the year it is released and $1.7 million for the following four years. What is the payback period of this investment? If you require a payback period of two years will you make the movie? Does the movie have positive NPV if the cost of capital is 10.7%

Please go step by step because I'm extremely confused and write legibly. Thank You.

The answer to the first one is 5.4 years and the answer to the second one is No. "Does the movie have positive NPV if the cost of capital is 10.7%" why is the answer $-2.37 for the last one?

Answer 1

Payback	5.41
NPV	($2.37)

Workings

Year	Cash flows	Cumulative CF
0	-10.7	-10.7
1	0	-10.7
2	4.9	-5.8
3	1.7	-4.1
4	1.7	-2.4
5	1.7	-0.7
6	1.7	1

Book1 - Excel Sign in - AutoSave File Home 2 Insert : Page Layout X Comments Draw Formulas Data Review View Help Tell me what you want to do Share X = = = 1 O -A A - A- Calibri - 11 BIU - - Font an 3 J Insert Delete - Format General $ -% Paste Conditional Format as Formatting Table Styles Cell Styles Z . Sort & Find & Filter - Select - Editing Clipboard Alignment Number Cells Year Cash flows -10.7 0 4.9 1.7 Cumulative CF =C2 =D2+C3 =D3+C4 D4+C5 =D5+C6 =D6+07 =D7+C8 1.7 Payback NPV =B7-07/08 =NPV(10.7%,C3:C8)+C2