Marvel Studio is considering making two new superhero movies: The Iron Man Returns 1 (IMR1) and its sequel, The Iron Man Returns 2 (IMR2). To reduce the production costs for the movies, the studio is planning on making the two movies simultaneously. Simultaneously producing the movies will immediately cost the studio $400 million and will take one year to complete both movies. Then, the studio will release IMR1 in Year 1 and IMR2 in Year 2. The studio estimates that there is an equal chance that IMR1 will be either a hit or a flop. If IMR1 is a hit, IMR1 will generate $300 million in Year 1 and IMR2 will generate $500 million in Year 2. If IMR1 is a flop, IMR1 will only generate $100 million in Year 1, and IMR2 will generate $120 million in Year 2. The discount rate is 7%.

What is the NPV of the project?

• A. $110.00 million
• B.

  $57.68 million

• C.

  $0

• D.

  $400.00 million

• E.

  $132.88 million

• F. -$4.958 million