Question

You are considering making a movie. The movie is expected to cost $100 million upfront and takes a year to make. After that, it is expected to make $83 million in the first year it is released and $8 million for the following 20 years. Your cost of capital is 10%.

a.) What is the payback period of this investment? (Hint: consider that you look upfront at this, that is from year=0. For solving this task it is necessary to consider carefully the timeline of the cash flows in years=0,1,2,3,....,21,22)

The payback period is years. (round to a full year)

b.) If you require a payback period of two years, will you make the movie?

Answer:  (fill in "yes" or "no")

c.) What is the NPV of this project?

The NPV is $ million. (round to two decimals)

d.) According to the NPV rule, should you make the movie?

Answer:  (fill in "yes" or "no")

Answer 1