Finance Assignment | Professional Writing
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 generale $1.2 million as a result of DVD sales, with cash flows decreasing by 25% in perpetuity from then on. The tirneline for this project is provided below: = 0 4 CF ($million) -20 0 14 4.2 3.15 Question A:
If your movie studio makes investment decisions based solely on a required payback period of three years, would you make this movie? O A. YES O B. NO OC. There is not enough information to answer this question Question B: If your finn’s cost of capital is 10% what is the NPV of this opportunity? (Choose the most appropriate answer) O A $26 25 milion OB. $3.57 million OC. $6.00 million OD. $1.49 million E. $0.59 million Question C: The profitability index of this film is closest to which of the following? O A..0900 OB. .0255 OC. .0675 OD. .0744 O E. .0856
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