You are working on an estimated NPV for a movie project. It will cost $75 million to produce the first movie, and there is a 25% chance it is a success (producing a CF of $185 million in a year), and a 75% chance it is not successful (with a CF of $45 million). If the first movie is a success, then you'll fund a big budget sequel. It'll cost $280 million and has a 95% chance of generating a $950 million cash flow in 2 years, and a 5% chance of a $210 million cash flow. If the first movie is not a success, you're planning to do a low-budget sequel. In this case, the sequel will cost $35 million, and has an 80% chance of a $50 million cash flow, and a 20% chance of a $25 million cash flow. Your discount rate is 17% for this movie.  

What is the NPV?

Answer rating: 100% (QA)

SOLUTION To calculate the NPV of the movie project we need to estimate the expected cash flows of th... View the full answer