Question

You are considering making a movie. The movie is expected to cost $10.7 million up front and take a year to produce. After that, it is expected to make $4.4milion in 1 the year it is roloased and $1.7 cost of capital is 10.1 W ? What is the payback period of this invetsment? The paytack period is years (Round to two decimal places)

Answer 1

The payback period of this investment is approximately 3.71 years.

Step-by-step explanation:

The payback period is a measure used to determine how long it takes to recover the initial investment in a project. To calculate the payback period, we need to determine how long it will take for the cash inflows to equal or exceed the initial investment.

In this case, the initial investment is $10.7 million and the cash inflows are $4.4 million in the first year and $1.7 million in subsequent years. To find the payback period, we subtract the cash inflows from the initial investment until we reach zero or a positive value.

By subtracting $4.4 million from $10.7 million, we have $6.3 million remaining. Dividing this remaining amount by the cash inflow of $1.7 million per year, we find that it will take approximately 3.71 years to recover the initial investment.