You are the star of a blockbuster movie. You can get paid $5,000,000 today or you...

You are the star of a blockbuster movie. You can get paid $5,000,000 today or
you can get 10.00% of the gross ticket sales for the next 10 years.
You expect ticket sales to be $10,000,000 per year for the next 10 years, starting next year.
If your investments earn 4% APR compounded annually,
how much do you gain in PV terms by taking a percentage of gross?

Expert Solution

Discount rate	4.0000%
Cash flows	Year	Discounted CF= cash flows/(1+rate)^year	Cumulative cash flow
(5,000,000.000)	0	(5,000,000.00)	(5,000,000.00)
1,000,000.000	1	961,538.46	(4,038,461.54)
1,000,000.000	2	924,556.21	(3,113,905.325)
1,000,000.000	3	888,996.36	(2,224,908.97)
1,000,000.000	4	854,804.19	(1,370,104.78)
1,000,000.000	5	821,927.11	(548,177.67)
1,000,000.000	6	790,314.53	242,136.86
1,000,000.000	7	759,917.81	1,002,054.67
1,000,000.000	8	730,690.21	1,732,744.87
1,000,000.000	9	702,586.74	2,435,331.61
1,000,000.000	10	675,564.17	3,110,895.78

benefit = 3,110,895.78

jeff jeffy answered 1 year ago

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