You are considering making a movie. The movie is expected to cost $10.4 million upfront and take a year to make. After that, it is expected to make $4.3 million in the first year it is released (end of year 2) and $1.8 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 10.7%?

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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am. 257.

You are considering making a movie. The movie is expected to cost $10.4 million upfront and take a year to make. After that, it is expected to make $4.3 million in the first
year it is released (end of year 2) and $1.8 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 10.7%?
Transcribed Image Text:You are considering making a movie. The movie is expected to cost $10.4 million upfront and take a year to make. After that, it is expected to make $4.3 million in the first year it is released (end of year 2) and $1.8 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 10.7%?
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