Calculating the net present value of a movie project

Reference no: EM13826964

Problem:

1. A coin collector treasures his first edition $2 note because he found it in his pocket change, rather than purchasing it. He can sell it in the open market for $12000, but would only sell it for at least twice that price, due to its sentimental value to him. It is anticipated that the note will increase in market value in the foreseeable future. What is the value of the note?

A. $2, since he paid nothing to obtain the note and it has a face value of two dollars.

B. $12000, since this is the price that the note would fetch in the open market today.

C. At least $12000, since he could replace the note for $12000, but the note he owns has additional intangible value due to its sentimental value.

D. At least $12000, since the value of the note will increase in the future.

2. 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. Rather than paying for the $20 million investment entirely using its own cash, the film maker is considering raising additional funds by issuing a security that will pay investors $11 million in one year. Suppose the risk-free rate of interest is 10%.

Without issuing the new security, the net present value (NPV) for this project is closest to what amount? Should the film maker make the investment?

A. $1.7 million; yes

B. $1.7 million; no

C. $2.7 million; yes

D. $2.7 million; no

Summary of question:

These short questions is from Finance. The 1st question is about assessing the value of an old $2 note. The 2nd question is about calculating the net present value of a movie project.

Reference no: EM13826964

Questions Cloud

Case study-the financial detective 2005 : Case Study: The Financial Detective 2005 by Sean Carr under the direction of Robert F. Bruner for The University of Virginia Darden school Foundation.

Allocated common fixed costs : Allocated common fixed costs:

Capital budgeting decision to undertake a plant expansion : In a capital budgeting decision to undertake a plant expansion, which of the following amounts would be affected by a tax rate change?

Involves the utilization of a constrained resource : In a decision that involves the utilization of a constrained resource, which of the following products would be selected?

Calculating the net present value of a movie project : 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.

Convention for both book and tax : ABC Corporation has the following activities that should generate book/tax differences in 2014: Purchased $100,000 of 5 year property. Straight-line depreciation is used for book purposes. (Assume ½ year convention for both book and tax).

Explain relationship between tax rate and tax revenue : The essay answers the above three problems by explaining the relationship between tax rate and tax revenue through the Laffer curve.

Calculation total production cost flexible budget variance : Which of the following variances considers only the cost varience to be included in the calculation of the total production cost flexible budget variance?

Management discussion and analysis : One way Enron manipulated its financial statements was to sell assets at inflated prices to other firms, while giving a promise to buy back those assets at a later date. The incoming cash was recorded as revenue, but the promise to buy back the as..

User Account

All Pages