Blixa is a prominent composer and performer who is in constant search of new opportunities to...
Blixa is a prominent composer and performer who is in constant search of new opportunities to apply his talent. Specifically, he considers investing his time in recording a phonk album. Phonk is growing very fast, yet it is still at an early stage and there is room for new stars in this genre. That being said, Blixa is concerned that phonk’s popularity will not last long, which may turn the time invested in recording the new album into the time wasted.
If today Blixa decides to work on a new album, he will have to leave the EN, his current group. The today’s opportunity cost of doing so is $0.5M. If he decides to leave, it will take him a year to record an album. In a year from now, he will have to decide whether he wants to invest $3M in publishing the album. Also, in a year from now it will become more clear how much popularity phonk may gain. If phonk indeed becomes a big thing in music world, then publishing the album will generate $1M per year for five years (first cash flow in two years from today). If not, then publishing the album will generate $0.7M per year for three years. Both states are equally likely and the cost of capital is 15%.
A. What is the expected stage 1 NPV of this project?
B> What is the stage 0 NPV of this project?
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Blixa is a prominent composer and performer who is in constant
search of new opportunities to...
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why? (if you use excel to solve this question, please copy your
solution and explain it verbally)
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