Question

You are considering making a movie. The movie is expected to cost $10.5 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%?

Answer #1

No, the movie will not be made on the payback period, as the payback is more than 2 years. The movie does not have a positive NPV.

CALC:

You are considering making a movie. The movie is expected to
cost $10.5 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 $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 10.1%?

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You are considering making a movie. The movie is expected to
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that, it is expected to make $ 4.6 million in the year it is
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