You are considering making a movie. The movie is expected to cost $10.7 million upfront and take a year to make. After that, it is expected to make $4.3 million in the first year it is released and $1.7 million per year 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%? According to the NPV rule, should you make this movie?

Choosing between Projects AppendixLO1