An independent film maker is considering producing a new movie.The initial cost for making this movie will be $20 million today.  Once the movie is completed, in one year, the movie will be sold to a major studio for $25 million:

1. Suppose the risk-free rate of interest is 10%, what is the NPV of this project?

2. If the film maker borrows $10 million today to fund the cost today at the risk-free rate, how much does the film make need to pay back to the bank in one year? What is the NPV of borrowing?

3. What is the NPV of the project if the film maker borrows $10 million to make the film?

Answer rating: 100% (QA)

The NPV of the project can be calculated as follows NPV Future cash flows 1 discount raten Initial i... View the full answer