Bill Clinton reportedly was paid $15.0 million to write his book My Life. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8.9 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.7% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that, once the book is finished, it is expected to generate royalties of $4.6 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments? a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? The NPV of agreeing to write the book (ignoring any royalty payments) is $. (Round to the nearest dollar.) The CEO of Garneau Cinemas is considering making a movie and must decide between a comedy and a thriller-it doesn't have the production space to make both. The comedy is expected to cost $20 million up front (at t=0 ). After that, it is expected to make $11 million in the first year (at t=1 ) and $4 million in each of the following two years (at t=2 and t=3 ). In the fourth year (at t=5 ), it is expected that the movie can be sold into syndication for $2 million with no further cash flows back to Garneau Cinemas. The thriller is expected to cost $40 million up front (at t=0 ). After that, it is expected to make $25 million in the first year (at t=1 ) and $4 million in each of the following four years (at t=2,3,4, and 5 ). In the sixth year (at t=6 ), it is expected that the movie can be sold into syndication for $30 million with no further cash flows back to Garneau Cinemas. The cost of capital is 10%, and Garneau usually requires projects to have a payback within four years. Determine each project's payback and NPV, and advise the CEO what she should do. The payback for the comedy is years, and the NPV of the comedy is $. The payback for the thriller is years, and the NPV of the thriller is $ (Round to two decimal places as needed.) Bill Clinton reportedly was paid $15.0 million to write his book My Life. The book took three years to write. In the time he spent writing, Clinton could have been paid to make speeches. Given his popularity, assume that he could earn $8.9 million per year (paid at the end of the year) speaking instead of writing. Assume his cost of capital is 9.7% per year. a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? b. Assume that, once the book is finished, it is expected to generate royalties of $4.6 million in the first year (paid at the end of the year) and these royalties are expected to decrease at a rate of 30% per year in perpetuity. What is the NPV of the book with the royalty payments? a. What is the NPV of agreeing to write the book (ignoring any royalty payments)? The NPV of agreeing to write the book (ignoring any royalty payments) is $. (Round to the nearest dollar.) The CEO of Garneau Cinemas is considering making a movie and must decide between a comedy and a thriller-it doesn't have the production space to make both. The comedy is expected to cost $20 million up front (at t=0 ). After that, it is expected to make $11 million in the first year (at t=1 ) and $4 million in each of the following two years (at t=2 and t=3 ). In the fourth year (at t=5 ), it is expected that the movie can be sold into syndication for $2 million with no further cash flows back to Garneau Cinemas. The thriller is expected to cost $40 million up front (at t=0 ). After that, it is expected to make $25 million in the first year (at t=1 ) and $4 million in each of the following four years (at t=2,3,4, and 5 ). In the sixth year (at t=6 ), it is expected that the movie can be sold into syndication for $30 million with no further cash flows back to Garneau Cinemas. The cost of capital is 10%, and Garneau usually requires projects to have a payback within four years. Determine each project's payback and NPV, and advise the CEO what she should do. The payback for the comedy is years, and the NPV of the comedy is $. The payback for the thriller is years, and the NPV of the thriller is $ (Round to two decimal places as needed.)
