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47.         (BONUS) Suppose that Disney wants to follow up on the success of Frozen, with a...

47.         (BONUS) Suppose that Disney wants to follow up on the success of Frozen, with a sequeal this fall. The movie will cost $165 million to produce (INVESTED TODAY), and the producers expect the movie to generate a cash flow of $160 million in the first year. After the first year, cash flows will decline to $15 million in year 2.

However, the movie will also create synergy within the company.

Disney will build a new Olaf ride at Epcot for $40 million (invested TODAY). Disney suspects that the ride will bring visitors to the park and increase merchandise sales. Disney estimates that sales will increase by $12 million per year in PERPETUITY. The after-tax operating margin on these sales is 50% for Disney. If the cost of capital is 10%, what is the combined NPV of this opportunity?

a.

$6.77 million

b.

$7.86 million

c.

$8.15 million

d.

$8.85 million

e.

$12.85 million

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jeff jeffy answered 1 month ago
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