Question

4. ESPN currently pays the NFL $1.1 billion per year for eight years for the right to exclusively televise Monday Night Football. What is the net present value of this investment if the parent Disney Company has an opportunity interest rate equal to its cost of capital of 9 percent. Fox and CBS agreed to pay $712 million and $622 million respectively for six year to televise Sunday afternoon NFC games. What was that worth?

Answer 1

ESPN

Amount paid per year = $1.1 billion

Time period = 8 years

Interest rate = 9%

Calculate the net present value -

NPV = Amount paid per year (P/A, i, n)

NPV = $1.1 billion (P/A, 9%, 8)

NPV = $1.1 billion * 5.5348

NPV = $6.09 billion

Thus,

The net present value of this investment is $6.09 billion.

FOX

Amount paid per year = $712 million

Interest rate = 9%

Time period = 6 years

Calculate the net present value -

NPV = Amount paid per year (P/A, i, n)

NPV = $712 million (P/A, 9%, 6)

NPV = $712 million * 4.4859

NPV = $3,193.96 million

Thus,

The net present value of this investment for Fox is $3,193.96 million.

CBS

Amount paid per year = $622 million

Interest rate = 9%

Time period = 6 years

Calculate the net present value -

NPV = Amount paid per year (P/A, i, n)

NPV = $622 million (P/A, 9%, 6)

NPV = $622 million * 4.4859

NPV = $2,790.23 million

Thus,

The net present value of this investment for CBS is $2,790.23 million.