You are considering making a movie. The movie is expected to cost $10.9 million up front and take one year to produce. After that, it is expected to generate $7.5 million in cash flows in the year it is released (year 2) and $2.1 million in year 3. Beginning with year 4, cash flows are expected to fall by 10% compared to the previous year for three years. The movie will not generate any cash flows beyond year 6. If you require a payback period of three years, will you make the movie? What is the NPV of making the movie if the cost of capital is 10.2?

Based on the required payback period would you make this movie?

The NPV of making the movie is: