Question

You are considering making a movie. The movie is expected to cost $10.2 million up front and take a year to produce. After​ that, it is expected to make $4.3 million in the year it is released and $1.6 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 10.4%​?

Answer 1

Movie
Year	Cash flow stream	Cumulative cash flow
0	-10.2	-10.2
1	0	-10.2
2	4.3	-5.9
3	1.6	-4.3
4	1.6	-2.7
5	1.6	-1.1
6	1.6	0.5

Payback period is the time by which undiscounted cashflow cover the intial investment outlay

this is happening between year 5 and 6

therefore by interpolation payback period = 5 + (0-(-1.1))/(0.5-(-1.1))

5.69 Years

Movie
Discount rate	10.400%
Year	0	1	2	3	4	5	6
Cash flow stream	-10.2	0	4.3	1.6	1.6	1.6	1.6
Discounting factor	1.000	1.104	1.219	1.346	1.486	1.640	1.811
Discounted cash flows project	-10.200	0.000	3.528	1.189	1.077	0.976	0.884
NPV = Sum of discounted cash flows
NPV Movie =	-2.55
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor

No you will not make the movie & -2.55 million