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Question: A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published - cost is 5 million pounds. Previous experience indicates the novel has a 50/50 chance of success or failure. If successful, the movie will earn a PV of 75 million pounds. If a flop, the movie will make a loss of 75 million pounds (development & promotion). What is the traditional NPV of this project? What would be the NPV of this project with the use of real options?

Question: A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published - cost is 5 million pounds. Previous experience indicates the novel has a 50/50 chance of success or failure. If successful, the movie will earn a PV of 75 million pounds. If a flop, the movie will make a loss of 75 million pounds (development & promotion). What is the traditional NPV of this project? What would be the NPV of this project with the use of real options?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question: A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published - cost is 5 million pounds. Previous experience indicates the novel has a 50/50 chance of success or failure. If successful, the movie will earn a PV of 75 million pounds. If a flop, the movie will make a loss of 75 million pounds (development & promotion). What is the traditional NPV of this project? What would be the NPV of this project with the use of real options?
Transcribed Image Text:Question: A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published - cost is 5 million pounds. Previous experience indicates the novel has a 50/50 chance of success or failure. If successful, the movie will earn a PV of 75 million pounds. If a flop, the movie will make a loss of 75 million pounds (development & promotion). What is the traditional NPV of this project? What would be the NPV of this project with the use of real options?
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