A TV programme maker, called Ace Production, is considering a new show with 10 episodes per series which would be offered to a TV-broadcasting channel. The show would be an annual baking competition and is predicted to run for 4 years. 1. The show is expected to be offered to the channel for £11,000,000 per season initially. However, if the show is successful, the programme maker expects to increase its charge by 10% for each season. 2. In order to create the show, Ace production would have to enter into a licencing deal with another production company that has a patent on a next to identical show. This is expected to cost £20,000,000. 3. The show would rent premises for the competition which are anticipated to cost £35,000 per month for the three months of filming each year.
A TV programme maker, called Ace Production, is considering a new show with 10 episodes per series which would be offered to a TV-broadcasting channel. The show would be an annual baking competition and is predicted to run for 4 years. 1. The show is expected to be offered to the channel for £11,000,000 per season initially. However, if the show is successful, the programme maker expects to increase its charge by 10% for each season. 2. In order to create the show, Ace production would have to enter into a licencing deal with another production company that has a patent on a next to identical show. This is expected to cost £20,000,000. 3. The show would rent premises for the competition which are anticipated to cost £35,000 per month for the three months of filming each year.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:A TV programme maker, called Ace Production, is considering a new show with 10
episodes per series which would be offered to a TV-broadcasting channel. The show
would be an annual baking competition and is predicted to run for 4 years.
1. The show is expected to be offered to the channel for £11,000,000 per season
initially. However, if the show is successful, the programme maker expects to
increase its charge by 10% for each season.
2. In order to create the show, Ace production would have to enter into a licencing
deal with another production company that has a patent on a next to identical
show. This is expected to cost £20,000,000.
3. The show would rent premises for the competition which are anticipated to cost
£35,000 per month for the three months of filming each year.
4. The company would use many of its current staff but doing so, it would forgo the
production and sale of long-running cooking competition which currently makes a
contribution of £150,000 per year.
5. Ace would employ additional staff, including a film crew, which is estimated to
amount to £4,250,000 in the first year of filming and increase by 2% in line with
the company's annual wage increases.
6. The four presenters of the show each earn £100,000 in season 1. However, if the
production is successful, they are expected to re-negotiate their contracts every
three years (starting in year 4) for a 50% increase.
7. The cost of capital is 12% per annum.
8. Assume all cash flows occur on the last day of each year except for the
immediate licencing deal.
a. Calculate the estimated Net Present Value (NPV) of the show.
b. What is Net Present Value and evaluate its merits as a project appraisal
technique.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education