You are considering making a movie. The movie is expected to cost $10.8 million up front and take a year to produce. After? that, it is expected to make $4.1 million in the year it is released and $1.7 million for the following four years.a) What is the payback period of this? investment?b) 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 10.6%??npv is _?a) ans is (5.9)plz give me ans b.-2.28 ,-1.35 is also wrong ans (round to the to decimal number)
Year | Cash Flows ( in millions) |
0 | - $ 10.8 |
1 | $ 0 |
2 | $ 4.1 |
3 | $ 1.7 |
4 | $ 1.7 |
5 | $ 1.7 |
6 | $ 1.7 |
Payback Period = 5 years + ( $ 1.4 million / $ 1.7 million) year = 5 years + 0.9 year = 5.9 years
No, the movie will not be made if payback period is of 2 years.
No, the movie has not a positive NPV if the cost of capital is 10.6 %
Cost of Capital = 10.6 %
NPV = $ 0/ ( 1 + 0.106)1 + $ 4.1 / ( 1 + 0.106)2 + 1.7 / ( 1 + 0.106)3 + 1.7 / ( 1 + 0.106)4 + 1.7 / ( 1 + 0.106)5
+ 1.7 / ( 1 + 0.106)6 - $ 10.8 [ all in millions]
= - $ 3.10 million
This movie should not be made as the payback period exceeds 2 years and NPV is negative.
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