Question
Jekyll and Hyde, Inc. has just purchased the rights to a movie. The company has the option of producing the movie on either a large
Jekyll and Hyde, Inc. has just purchased the rights to a movie. The company has the option of producing the movie on either a large budget of $25 million or a small budget of $10 million. The cash flow in year 1 for the large budget movie is $65 million, while the cash flow in year 1 for the small-budget movie is $40 million. The cost of capital is 25%. Which project should be accepted? a. The large-budget movie because the IRR is higher. b. The small-budget movie because the NPV is lower. c. The large-budget movie because the NPV is higher. d. The small-budget movie because the IRR is lower.
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