You are considering making a movie. The movie is expected to cost $ 10.2   million upfront and take a year to make. After​ that, it is expected to make $ 4.4   million in the first year it is released​ (end of year​ 2) and $ 2.1   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? Does the movie have positive NPV if the cost of capital is 10.2 % ​?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 22P
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You are considering making a movie. The movie is expected to cost

$ 10.2
 

million upfront and take a year to make. After​ that, it is expected to make

$ 4.4
 

million in the first year it is released​ (end of year​ 2) and

$ 2.1
 

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? Does the movie have positive NPV if the cost of capital is

10.2 %

​?

 

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