You are evaluating a project to produce a movie and are wondering how much you can...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
You are evaluating a project to produce a movie and are wondering how much you can afford to pay the actors. Actors' Compensation The shooting of the movie will commence in month 5 and will take 12 months to complete. Actors are paid on a monthly basis, and their salary grows by 1% each month. The first salary payment to actors will occur at the end of month 5 and the remaining 11 payments will occur at the end of each of the next eleven months. The Movie After the movie is released, it will be shown in theaters for 5 months, producing cash inflows at the end of each month. The first cash inflow, to be received at the end of month 18, is estimated to be $25 million. For the remaining four months, the inflow will decrease at a monthly rate of 10%, as the viewership gradually declines and the picture moves to budget theaters. The Decision You are now negotiating with several famous actors and wonder about the following question: what is the maximum amount of the first monthly payment to the actors so that the movie creates at least $20 million in present value terms? Assume that the actors' salary is the only expense in the movie production, that there are no taxes in this particular example, and that the monthly rate is 2%. You are evaluating a project to produce a movie and are wondering how much you can afford to pay the actors. Actors' Compensation The shooting of the movie will commence in month 5 and will take 12 months to complete. Actors are paid on a monthly basis, and their salary grows by 1% each month. The first salary payment to actors will occur at the end of month 5 and the remaining 11 payments will occur at the end of each of the next eleven months. The Movie After the movie is released, it will be shown in theaters for 5 months, producing cash inflows at the end of each month. The first cash inflow, to be received at the end of month 18, is estimated to be $25 million. For the remaining four months, the inflow will decrease at a monthly rate of 10%, as the viewership gradually declines and the picture moves to budget theaters. The Decision You are now negotiating with several famous actors and wonder about the following question: what is the maximum amount of the first monthly payment to the actors so that the movie creates at least $20 million in present value terms? Assume that the actors' salary is the only expense in the movie production, that there are no taxes in this particular example, and that the monthly rate is 2%.
Expert Answer:
Answer rating: 100% (QA)
To determine the maximum amount of the first monthly payment to the actors so that the movie creates at least 20 million in present value terms we nee... View the full answer
Related Book For
Introduction To Corporate Finance
ISBN: 9781118300763
3rd Edition
Authors: Laurence Booth, Sean Cleary
Posted Date:
Students also viewed these finance questions
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
You are evaluating a project for a small manufacturing firm. The firm has provided the following data: the initial cost of the project is $2,500; the CCA rate is 10 percent; tax rate is 25 percent;...
-
The Crazy Eddie fraud may appear smaller and gentler than the massive billion-dollar frauds exposed in recent times, such as Bernie Madoffs Ponzi scheme, frauds in the subprime mortgage market, the...
-
Question 2 A company manufactures and sells x units of audio system per month. The cost function and the price function (in RM) are given as below. Cost: C(x) = 40,000 + 600 x Price: p(x) = 3,000 -...
-
(Treasury StockCost MethodEquity Section Preparation) Washington Company has the following stockholders equity accounts at December 31, 2010. Common Stock$100 par value, authorized 8,000...
-
For a p-channel enhancement-mode MOSFET, the parameters are \(K_{P}=\) \(2 \mathrm{~mA} / \mathrm{V}^{2}\) and \(V_{T P}=-0.5 \mathrm{~V}\). The gate is at ground potential, and the source and...
-
A statistics student has constructed a confidence interval for the mean height of daughters whose mothers are 66 inches tall, and a prediction interval for the height of a particular daughter whose...
-
Firemans Fund commissioned an online survey of 1,154 wealthy homeowners to find out what they knew about their insurance coverage. (a) When asked whether they knew the replacement value of their...
-
Budget targets Describe a circumstance which would lead you to raise targets in the budget. Explain the circumstance and your reasons: 11-BJ -3%SA I
-
You recently received the following e-mail from a client and friend: Hey Great Student, I cannot believe it is almost year end! Only a few days before its 2019. As you recall, I was lucky enough to...
-
What is conflict resolution? Why is conflict resolution important? Why is it important that managers have good conflict resolution skills? What are some strategies to improve relationships with a...
-
Schuss Inc. issued 3,000,000 of 10%, 10-year convertible bonds on April 1, 2015, at 98. The bonds were dated April 1, 2015, with interest payable April 1 and October 1. Bond discount is amortized...
-
The treasurer of Miller Co. has read on the Internet that the price of Wade Inc. ordinary shares is about to take off. In order to profit from this potential development, Miller Co. purchased a call...
-
Garner Inc. provides the following information related to its postretirement benefits for the year 2015. Instructions Compute postretirement benefit expense for 2015. Defined postretirement benefit...
-
Venzuela Co. is building a new hockey arena at a cost of \($2\),500,000. It received a down payment of \($500\),000 from local businesses to support the project and now needs to borrow \($2\),000,000...
-
Taveras Enterprises provides the following information related to its defined benefit pension plan. Instructions (a) Prepare the note disclosing the components of pension expense for the year 2015....
-
Mapping ERD to Relational Company(...,) Staff(ID,Name,dobirth, companyid,since, wife_name) Task(Description,..) Perfom(ID, description) primary key (id, description) Wife(Name,...) Staff_phone(id,...
-
Consider the following cash flows in Table P5.5. (a) Calculate the payback period for each project. (b) Determine whether it is meaningful to calculate a payback period for project D. (c) Assuming...
-
Jensens Juice Bar is considering purchasing a new blender. Indicate which of the following statements a relevant consideration in the new-blender decision. a. Last year, Jensens spent $500 on a new...
-
List the basic areas of capital budgeting.
-
Omars business purchased several pieces of machinery some time ago for $25,000. At the beginning of the current year, this pool of assets had a UCC of $15,000. During the year, Omar decided to sell...
-
The change in entropy for an ideal gas undergoing a thermodynamic process is (a) \(S_{2}-S_{1}=-R \ln \frac{V_{1}}{V_{2}}\) (b) \(S_{2}-S_{1}=-R \ln \frac{P_{1}}{P_{2}}\) (c) \(S_{2}-S_{1}=R \ln...
-
A car tyre of volume \(0.057 \mathrm{~m}^{3}\) is inflated to \(300 \mathrm{kPa}\) and \(300 \mathrm{~K}\). After driving the car for 10 hours, the pressure in the tyre increases to \(330...
-
The degree of freedom of a system comprising a gaseous mixture of \(\mathrm{H}_{2}\) and \(\mathrm{NH}_{3}\) will be (a) 1 (c) 3 (b) 2 (d) 0
Study smarter with the SolutionInn App