QUESTION ONE 4 26 Njenge Limited a company established as a Special Purpose Vehicle intends to put up a theme park in Samfya. Among the major attractions at the theme park will be entertainment targeted at children below the age of ten (10) years eg. talking toy horses. In addition the company is considering producing an animated film to accompany the range of entertainment product s. This % in accordance with the company's long-term expansion plans, culminating in a stock exchange flotation in threeyears' time The film will take one year to make. In the year following that, sales of the film will commence. The following information is relevant has been provided. (6) Market research has already been carried out at a cost of $1-2 million. (ii) The services of a company speci $520,000, 50% of these costs will be paid immediately with the remainder being paid in one year's time. tion will be required at a total cost of hin) Two producers will be employed throughout the first year of the project. They will each be aid salaries of $120,000. ee. Ev) Other production costs during the year are expected to be $650,000. (v) A film director will be employed immediately on a one-year contract at a cost of $160.000 (vi) The animated film is expected to generate revenues of s1:2 million in the first year of sales, $2 2 million in the second year, and $1-6 million in the third year. (evi) The two producers and the director will each be paid royalties from the film. These will be paid at the rate of 1,5% of gross revenues for EACH of the produc.wand 2% for the director They will always be payable one year in arrears. (vii) Specialist equipment will need to be purchased immediately for the film production. This will cost $2-3 million but can be sold at the end of the year for $1 7 million