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You are considering making a movie. The movie is expected to cost $ 10.7 million up...

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Finance

You are considering making a movie. The movie is expected tocost $ 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 isreleased and $ 2.1 million for the following four years. What isthe payback period of this? investment? If you require a paybackperiod of two? years, will you make the? movie? Does the movie havepositive NPV if the cost of capital is 10.8 %?? What is the paybackperiod of this? investment??? The payback period is nothingyears.???(Round to one decimal? place.)

Answer & Explanation Solved by verified expert
3.7 Ratings (606 Votes)

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

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Transcribed Image Text

You are considering making a movie. The movie is expected tocost $ 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 isreleased and $ 2.1 million for the following four years. What isthe payback period of this? investment? If you require a paybackperiod of two? years, will you make the? movie? Does the movie havepositive NPV if the cost of capital is 10.8 %?? What is the paybackperiod of this? investment??? The payback period is nothingyears.???(Round to one decimal? place.)

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