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?

Essentials of Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter15: Decision Analysis
Section: Chapter Questions
Problem 10P: Hemmingway, Inc. is considering a $5 million research and development (R&D) project. Profit...
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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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Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
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