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%?
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.
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