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

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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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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.)