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You are considering making a movie. The movie is expected to cost $20 million up front ( at t=0) and take a year to produce.

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You are considering making a movie. The movie is expected to cost $20 million up front ( at t=0) and take a year to produce. After that, it is expected to generate positive cash flow of $14 million in the year it is released ( at t=2). In year 3 , the film is expected to generate $4.2 million as a result of DVD sales, with cash flows decreasing by 25% in perpetuity from then on. The timeline for this project is provided below: Question A: If your movie studio makes investment decisions based solely on a required payback period of three years, would you make this movie? A. YES B. NO C. There is not enough information to answer this question. Question B: If your firm's cost of capital is 10%, what isthe NPV of this opportunity? (Choose the most appropriate answer) Question B: If your firm's cost of capital is 10%, what is the NPV of this opportunity? (Choose the most appropriate answer) A. $26.28 million B. $3.57 million C. $6.00 million D. $1.49 million E. $0.59 million Question C: The profitability index of this film is closest to which of the following? A. 0255 B. 0856 C. 0900 D. .0675 E. .0744

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