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Robert got tired of teaching and considers making an autobiographical documentary of his life. Movie is expected to cost $10.4 million upfront and...
Robert got tired of teaching and considers making an autobiographical documentary of his life. Movie is expected to cost $10.4 million upfront and take a year to make. After that, it is expected to make $4.1 million in the first year it is released (end of year 2) and $2.1 million for the following four years (end of years 3-6).
a) What is the payback period of this investment?
b) If he requires a payback period of two years, will you make the movie?
c)What is the NPV of the movie if the cost of capital is 10.3%?
d) According to the NPV rule, should he make this movie?
