2) NPV AND DVD RELEASE TIMING Until recently, a film was released on DVD many months after it was released in theatres. The longer the film plays in the theatre, the larger is the box office revenue, but the more delayed is the DVD revenue. Then again, the sooner the film is released on DVD, the more movie fans switch from theatre viewing to DVD viewing, and if fans know the DVD is coming out soon, then they're more likely to wait and watch on DVD. Thus, the timing of the DVD launch is an interesting optimization problem. Consider a 4-month period with times t=0,1,2,3 (for April, May, June, July). Suppose that the theatrical release of your movie is always April but you can choose whether to release the DVD in Simultaneously in April, with a Slight Delay in May, or with a Long Delay in June. Using the series of cash flows shown below, find the net present value maximizing DVD release date for these three discount rates: r = 0.08, r=0.1, and r = 0.12. E.g., if you release the DVD in April, then you'll make 150 selling tickets and 260 selling DVDs for an April total of 410, and you can plug these numbers into NPV. TIP: Find NPV[red April case], NPV [purple May case], and NPV [blue June case] for r = 0.08, then repeat for 10% and 12%. TIP: The Theatre Box Office and DVD Sales are all expressed in dollars. Month "Simultaneous" APRIL MAY JUNE JULY t=0 | 2 "Slight Delay" " Long Delay " 3 APRIL MAY JUNE JULY t=0 APRIL MAY JUNE JULY 2 3 t=0 2 3 Theatre Box office ($): 150 30 0 DVD Sales ($): 260 100 0 00 180 58 0 0 200 100 0 0 0 240 100 0 0 0 200 100 Time Period
2) NPV AND DVD RELEASE TIMING Until recently, a film was released on DVD many months after it was released in theatres. The longer the film plays in the theatre, the larger is the box office revenue, but the more delayed is the DVD revenue. Then again, the sooner the film is released on DVD, the more movie fans switch from theatre viewing to DVD viewing, and if fans know the DVD is coming out soon, then they're more likely to wait and watch on DVD. Thus, the timing of the DVD launch is an interesting optimization problem. Consider a 4-month period with times t=0,1,2,3 (for April, May, June, July). Suppose that the theatrical release of your movie is always April but you can choose whether to release the DVD in Simultaneously in April, with a Slight Delay in May, or with a Long Delay in June. Using the series of cash flows shown below, find the net present value maximizing DVD release date for these three discount rates: r = 0.08, r=0.1, and r = 0.12. E.g., if you release the DVD in April, then you'll make 150 selling tickets and 260 selling DVDs for an April total of 410, and you can plug these numbers into NPV. TIP: Find NPV[red April case], NPV [purple May case], and NPV [blue June case] for r = 0.08, then repeat for 10% and 12%. TIP: The Theatre Box Office and DVD Sales are all expressed in dollars. Month "Simultaneous" APRIL MAY JUNE JULY t=0 | 2 "Slight Delay" " Long Delay " 3 APRIL MAY JUNE JULY t=0 APRIL MAY JUNE JULY 2 3 t=0 2 3 Theatre Box office ($): 150 30 0 DVD Sales ($): 260 100 0 00 180 58 0 0 200 100 0 0 0 240 100 0 0 0 200 100 Time Period
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![2) NPV AND DVD RELEASE TIMING
Until recently, a film was released on DVD many months after it was released in theatres. The longer the film plays in the theatre,
the larger is the box office revenue, but the more delayed is the DVD revenue. Then again, the sooner the film is released on
DVD, the more movie fans switch from theatre viewing to DVD viewing, and if fans know the DVD is coming out soon, then
they're more likely to wait and watch on DVD. Thus, the timing of the DVD launch is an interesting optimization problem.
Consider a 4-month period with times t=0,1,2,3 (for April, May, June, July). Suppose that the theatrical release of your movie is
always April but you can choose whether to release the DVD in Simultaneously in April, with a Slight Delay in May, or with a
Long Delay in June. Using the series of cash flows shown below, find the net present value maximizing DVD release date
for these three discount rates: r = 0.08, r=0.1, and r = 0.12. E.g., if you release the DVD in April, then you'll make 150
selling tickets and 260 selling DVDs for an April total of 410, and you can plug these numbers into NPV.
TIP: Find NPV[red April case], NPV [purple May case], and NPV [blue June case] for r = 0.08, then repeat for 10% and 12%.
TIP: The Theatre Box Office and DVD Sales are all expressed in dollars.
Month
"Simultaneous"
APRIL MAY JUNE JULY
t=0 | 2
"Slight Delay"
" Long Delay "
3
APRIL MAY JUNE JULY
t=0
APRIL
MAY JUNE JULY
2
3
t=0
2
3
Theatre Box office ($):
150 30 0
DVD Sales ($):
260 100 0
00
180 58 0
0
200 100 0 0
0 240 100
0
0
0
200 100
Time Period](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6871a655-6df9-491d-9e6a-d916a0d3d66e%2F2676a6dd-0639-4576-8a21-bb2b21566069%2Fgf2eq7g_processed.png&w=3840&q=75)
Transcribed Image Text:2) NPV AND DVD RELEASE TIMING
Until recently, a film was released on DVD many months after it was released in theatres. The longer the film plays in the theatre,
the larger is the box office revenue, but the more delayed is the DVD revenue. Then again, the sooner the film is released on
DVD, the more movie fans switch from theatre viewing to DVD viewing, and if fans know the DVD is coming out soon, then
they're more likely to wait and watch on DVD. Thus, the timing of the DVD launch is an interesting optimization problem.
Consider a 4-month period with times t=0,1,2,3 (for April, May, June, July). Suppose that the theatrical release of your movie is
always April but you can choose whether to release the DVD in Simultaneously in April, with a Slight Delay in May, or with a
Long Delay in June. Using the series of cash flows shown below, find the net present value maximizing DVD release date
for these three discount rates: r = 0.08, r=0.1, and r = 0.12. E.g., if you release the DVD in April, then you'll make 150
selling tickets and 260 selling DVDs for an April total of 410, and you can plug these numbers into NPV.
TIP: Find NPV[red April case], NPV [purple May case], and NPV [blue June case] for r = 0.08, then repeat for 10% and 12%.
TIP: The Theatre Box Office and DVD Sales are all expressed in dollars.
Month
"Simultaneous"
APRIL MAY JUNE JULY
t=0 | 2
"Slight Delay"
" Long Delay "
3
APRIL MAY JUNE JULY
t=0
APRIL
MAY JUNE JULY
2
3
t=0
2
3
Theatre Box office ($):
150 30 0
DVD Sales ($):
260 100 0
00
180 58 0
0
200 100 0 0
0 240 100
0
0
0
200 100
Time Period
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education