Question: You are considering making a movie. The movie is expected to cost $10.7 million upfront and take a year to make. After that, it is expected to make $4.5 million in the first year it is released (end of year? 2) and $1.8 million for the following four years? (end of years 3 through 6) .
What is the payback period of this investment?
If you require a payback period of two years, will you make the movie?
What is the NPV of the movie if the cost of capital is 10.6%?
According to the NPV rule, should you make this movie?