Phoenix Television network Ltd is considering investing in a new television series,entitled"it's a Mad World",to complement its existing television series.Mr. Elliot Carver,the finance director of Phoenix,has asked you to undertake a valuation of the new series.The new series is expected to have a 3-year life.To assist you have collected the following information about the project. "It's a Mad World" project information: 1.Initial Investment (new equipment):$10,000,000 2.All initial investment costs are depreciated straight-line at a rate of 30% p.a. 3.Estimated advertising revenue (per year):$16,000,000 4.Operating expenses (per year):$10,000,000 5.Company tax rate:30% Additional information: At the end of the project Phoenix will be able to sell the new equipment(initial investment) for $3,000,000. Phoenix commissioned a piolt of the series last year at a cost of $500,000.
Phoenix Television network Ltd is considering investing in a new television series,entitled"it's a Mad World",to complement its existing television series.Mr. Elliot Carver,the finance director of Phoenix,has asked you to undertake a valuation of the new series.The new series is expected to have a 3-year life.To assist you have collected the following information about the project.
"It's a Mad World" project information:
1.Initial Investment (new equipment):$10,000,000
2.All initial investment costs are
3.Estimated advertising revenue (per year):$16,000,000
4.Operating expenses (per year):$10,000,000
5.Company tax rate:30%
Additional information:
At the end of the project Phoenix will be able to sell the new equipment(initial investment) for $3,000,000.
Phoenix commissioned a piolt of the series last year at a cost of $500,000.
All cash flows are stated in nominal terms.
Phoenix believes a discount rate of 20% p.a.(nominal) is appropriate for this project.
a.Determine the net cash flow for each year of the project.
b.What is the NPV of the "It's a Mad World" project?Should Phoenix proceed with this investment?
c.After further investigation you realise that the production of "It's a Mad World"will require the use of sets that are owned by Phoenix.If "It's a Mad World" were not prceed.these sets would be leased to another production company for $1,500,000 per annum for the next three years.Does this impact the NPV for this project?Does your recommendation regarding the project change
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