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You are considering making a movie. The movie is expected to cost $10 million upfront and take

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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%?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Payback Period
Payback period method is a traditional method/ approach of capital budgeting. It is the simple and widely used quantitative method of Investment evaluation. Payback period is typically used to evaluate projects or investments before undergoing them,...
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Plan In order to implement the payback rule we need to know whether the sum of the inflows from the ...View the full answer


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Brandon Watson
I graduated from the University of North Texas with a Mathematics Degree. In that degree, I focused largely on Analysis and Statistics. These were my main depth areas. In doing so, I took all the offered Calculus courses and Statistics courses. In addition, I have taken other proof-based classes such as Abstract Algebra and Topology. As for subjects I enjoy tutoring, anything pertaining to Algebra, Calculus, or Statistics I am especially comfortable with. While at UNT, I tutored in the Math Lab where I gathered experience by tutoring all these subjects on a daily basis for all sorts of students. Currently, I am a Doctoral student at Texas State University doing their Mathematics Education program.
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Fundamentals of Corporate Finance

Fundamentals of Corporate Finance

ISBN: 978-0132148238

2nd edition

Authors: Berk, DeMarzo, Harford

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NPV stands for \"Net Present Value,\" which is a financial concept used to determine the value of an investment or project. It measures the difference between the present value of cash inflows and the present value of cash outflows over a given period of time, using a specific discount rate. To calculate the NPV of an investment, you need to first estimate the cash inflows and outflows associated with the investment, and then discount them back to their present values using a discount rate. The discount rate represents the cost of capital or the expected rate of return required by investors. The formula for calculating NPV is: NPV = sum of (cash inflows / (1 + discount rate)^t) - sum of (cash outflows / (1 + discount rate)^t) Where: Cash inflows: the expected cash received from the investment Cash outflows: the expected cash paid out for the investment Discount rate: the required rate of return or the cost of capital t: the time period in which the cash flow occurs If the NPV is positive, it means that the investment is expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a good investment. If the NPV is negative, it means that the investment is not expected to generate a return higher than the required rate of return or the cost of capital, and it may be considered a bad investment.

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