Question

Roger Productions is evaluating a film project. The president of Roger estimates that the film will cost $20,000,000 to produce. In its first year, the film is expected to generate $16,307,000 in net revenue, after which the film will be released to video. Video is expected to generate $9,538,000 in net revenue in its first year, $2,496,100 in its second year, and $1,011,500 in its third year. For tax purposes, amortization of the cost of the film will be $12,000,000 in year 1 and $8,000,000 in year 2. The company’s tax rate is 35 percent, and the company requires a 13 percent rate of return on its films.

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What is the net present value of the film project? To simplify, assume that all outlays to produce the film occur at time 0. (Round present value factor calculations to 4 decimal places, e.g. 1.2151 and final answer to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

The net present value

$enter the net present value in dollars rounded to 0 decimal places

Should the company produce the film?

The company select an option                                                          should notshould produce the film.

Answer 1

Cash Flows:

T0=-20000000

T1=(16307000-12000000)*0.65+12000000

T2=(9538000-8000000)*0.65+8000000

T3=2496100*0.65

T4=1011500*0.65

NPV = $1,672,723

Since NPV is positive, company should produce the film!

01-01-2021	-20000000
01-01-2022	1,47,99,550
01-01-2023	89,99,700
01-01-2024	16,22,465
01-01-2025	6,57,475
NPV@13%	16,72,723.47