Question

You are considering making a movie. The movie is expected to cost million up front and take a year to produce. After​ that, it is expected to make million in the year it is released and 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 ​?.

Answer 1

Based on the cost of the movie and the amount it will make every year, the following are the payback periods and NPV:

• Payback period = 4.9 years
• You will not make the movie.
• The NPV is negative.

What is the Payback Period?

This can be found as:

= Year before payback  + (Amount left till payback / Amount in year of payback)

= 4 + ( (10.8 - 4.8 - 2.1 - 2.1) / 2.1)

= 4.9 years

With a payback period of 2 years, you will not recover your investment so you should not make the movie.

What is the NPV?

With a discount rate of 10.8%, the NPV is:

= (4.8 / 1.108)² + (2.1 / 1.108)³ + (2.1 / 1.108)⁴ + (2.1 / 1.108)⁵ + (2.1 / 1.108)⁶ - 10.8

= -$1.56 million

The NPV is therefore negative.

The full question is:

You are considering making a movie. The movie is expected to cost $10.8 million upfront and take a year to make. After​ that, it is expected to make $4.8 million in the first year it is released​ (end of year​ 2) and $2.1 million for the following four years​ (end of years 3 through​ 6) .

What is the payback period of this​ investment? If you require a payback period of two​ years, will you make the​movie? What is the NPV of the movie if the cost of capital is 10.8%​?

Find out more on Net Present Value at https://brainly.com/question/17185385.

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