You are considering making a movie. The movie is expected to cost $10 million up front (i.e. today) and will take a year to make. After that, it is expected to make $5 million in the year it is released (i.e. this cash flow occurs two years from now) and subsequently $2 million per year for the following four years. What is the simple and discounted payback period of this investment? If you require a payback period of three years, will you make the movie? What is the movie's NPV? (Assume the appropriate discount rate also known as the cost of capital to be 10% ), Given the NPV that you have calculated, estimate the range you think IRR will be at (note: no specific calculation required). Why is IRR important?
You are considering making a movie. The movie is expected to cost $10 million up front (i.e. today) and will take a year to make. After that, it is expected to make $5 million in the year it is released (i.e. this cash flow occurs two years from now) and subsequently $2 million per year for the following four years. What is the simple and discounted payback period of this investment? If you require a payback period of three years, will you make the movie? What is the movie's
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