In: Finance
You are considering making a movie. The movie is expected to cost $11.4 million up front and take a year to produce. After that, it is expected to make $5.1 million in the year it is released and $2.3 million for the following four years. 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 11.2% ?
a) Payback period = 3.74 years
b) If payback period is 2 years, the move should not be made
c) NPV is negative if the cost of capital is 11.2%