1. Calculate NPV and IRR and use them to evaluate Entertainment's decision not to invest in the new animation studio. Was the decision appropriate and in the best interests of Riverbend Studios?

The Entertainment division manager, Joe Freeman, was the first to knock on Karen's door this morning. Entertainment, Riverbend Studios' first business endeavor, produces movies for the big screen. Entertainment has been in operation since 1965. Last month, Joe had mentioned a proposal to build a new animation studio. The build would have an initial cost of $4,920,000 with an estimated life of 20 years, no salvage value and would allow Entertainment to start producing animated movies. Animated movies were projected to bring in an additional $1,210,000 in revenues each year but would increase annual production costs by $574,000. Joe had dropped in to let Karen know he had decided not to move forward with the animation studio. This surprised Karen. Her quick mental calculation indicated that the studio would have a reasonable payback period--much shorter than the expected life of the studio. Knowing that there are multiple ways to evaluate an investment, Karen needed to get some numbers from her accountant before resuming the discussion with Joe.

Table 1: Riverbend Studios current year data

	Entertainment	Streaming	Parks
Revenues	$54,583,520	$30,184,570	$7,564,270
Fixed COGS	$3,356,850	$4,074,530	$3,159,430
Variable COGS	$40,257,310	$22,020,695	$3,698,928
# of customers	15,264,200	1,420,060	30,240
# of employees	11,562	1,954	1,378
Average net operating assets	$29,014,000	$19,252,000	$420,000
Selling and admin costs	$3,259,520	$944,620	$231,900