Q1. You are considering investing in a start up company. The founder asked you for $290,000 today and you expect to get $980,000 in 10 years. Given the riskiness of the investment opportunity, your cost of capital is 20%. What is the NPV of the investment opportunity? Should you undertake the investment opportunity? Calculate the IRR and use it to determine the maximum deviation allowable in the cost of capital estimate to leave the decision unchanged.

Q2. You are considering making a movie. The movie is expected to cost $10.3 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 (end of year 2) and $2.1 million for the following four years (end of years 3 through 6) . What is the payback period of this investment? If you require a payback period of two years, will you make the movie? What is the NPV of the movie if the cost of capital is 10.9%? According to the NPV rule, should you make this movie?