Question

You are considering making a movie. The movie is expected to cost $ 10.7 million up front and take a year to produce. After​ that, it is expected to make $ 4.6 million in the year it is released and $ 2.1 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 10.8 %​? What is the payback period of this​ investment?   The payback period is nothing years.  ​(Round to one decimal​ place.)

Answer 1

	i	ii	iii		iv	v=ii*iv
	year	Cash flow	Cumulative cash flow		PVIF @ 10.8%	Present value
	0	-10.70	-10.70		1.0000	(10.70)
	1	4.60	-6.10		0.9025	4.15
	2	2.10	-4.00		0.8146	1.71
	3	2.10	-1.90		0.7352	1.54
	4	2.10	0.20		0.6635	1.39
	5	2.10	2.30		0.5988	1.26
	NPV					(0.64)
ans 1
computation of payback period =
			=3+(1.9/2.1)
			3.9	year
ans 2	Since payback period is higher than the required payback period of 2 year.
	Project will be REJECTED
ans 3	NPV at 10.8% discount rate is Negative -0.64million