Estimate the net present value of the project

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Reference no: EM133326460

You have been hired by an entertainment company and asked whether they should invest in a streaming service, and have collected the following information:

The company will have to spend $3 billion in acquiring a proprietary streaming product. This investment will be depreciated straight line over ten years to a salvage value of zero.
You expect to have 15 million subscribers, paying $120/year, for the next five years and the operating expenses (not including depreciation) of servicing these subscribers to be 60% of revenues.
The investment will generate additional sales of $20,000 a year for the next ten years for devices required for the streaming services. The pretax operating margin on devices sales is 30%. The sales will grow 10% a year for the following ten years.
The cost of capital is 10% and the marginal tax rate is 27%.
To provide exclusive content on its streaming, the company will have to pull movies that it now shows on Disney and forfeit $550 million in licensing fees (pre tax) that it would have received every year for the next ten years.

Estimate the net present value of the project, assuming that it will be wound up in ten years.

Reference no: EM133326460

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