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You are considering making a movie. The movie is expected to cost $12 million upfront and take a year to make. After that, it is
You are considering making a movie. The movie is expected to cost $12 million upfront and take a year to make. After that, it is expected to make $6 million (at the end of year two) and $3 million per year for the following four years. What is the payback period of this investment? If you require a payback period of five years, and that is your only criterion, will you make the movie? What is the NPV of the movie if the cost of capital is 14%? What does the NPV rule say about the making the movie?
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