Determine each project payback and npv

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The CEO of Gameau Cinemas is considering making a movie and must decide between a comedy and a thriller-it doesn't have the production space to make both. The comedy is expected to cost $25 million up front (at t = 0). After that, it is expected to make $16 million in the ?rst year (at t = 1) and $4 million in each of the following two years (at t = 2 and t = 3). In the fourth year (at t = 5), it is expected that the movie can be sold into syndication for $2 million with no further cash ?ows back to Gameau Cinemas. The thriller is expected to cost $40 million up front (at t = 0). After that, it is expected to make $20 million in the ?rst year (att = 1) and $3 million in each of the following four years (at t = 2, 3, 4, and 5). In the sixth year (at t = 6), it is expected that the movie can be sold into syndication for $30 million with no further cash flows back to Garneau Cinemas, The cost of capital is 12%, and Garneau usually requires projects to have a payback within four years.

Problem 1: Determine each project's payback and NPV, and advise the CEO what she should do.

Reference no: EM132708657

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