Calculating Payback Period and NPV
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You are considering making a movie. The movie is expected to cost $10 million upfront and take a year to make. After that, it is expected to make $5 million in the year it is released and $2 million for the following four years. What is the payback period of this investment? If you require a payback period of two years, will you make the movie? Does the movie have positive NPV if the cost of capital is 10%?
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Solution Summary
Solution describes the steps needed to calculate payback period and net present value of a proposal.
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Solution:
Time period Cash flows Cumulative cash flow
1 5 5
2 2 7
3 2 9
4 2 ...
Education
- BEng (Hons) , Birla Institute of Technology and Science, India
- MSc (Hons) , Birla Institute of Technology and Science, India
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