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?

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 £5m Previous experience indicates the novel has a 50/50 chance of success or failure If a success the movie will earn a PV of £75m If a flop the movie will make a loss of £75m (development & promotion) What is the traditional NPV of this project? What would be the NPV of this project with the use of real options? A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published – cost is £5m Previous experience indicates the novel has a 50/50 chance of success
Question What is primary and secondary market? An IPO is undertaken on primary or secondary market? What is the essential job of an investment banker? Why a stock exchange is called an auction market? What are the five basis principles of finance? Your company is considering choosing one of the two projects: Project Gold and Project Diamond. Each project will last 5 years and have no salvage value at the end. The company’s required rate of return for all investment projects is 9%. The cash flows of the two projects are provided below. Gold Diamond Cost $485 000 $520 000 Future Cash Flows Year 1 Year 2 Year 3 Year 4 Year 5 105 850 153 250 225 650 245 000 250 350 117 050 162 400 275 500 255 000 260 000 Required: Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum of 2.5 years.
The Dragons (from CBC's Dragon's Den) are considering a venture from an Albertan entrepreneur. His proposal requires the Dragons to invest $500,000 immediately. Based on market conditions, the product is estimated to have year-end profits of $100,000//$200,000//$300,000//$200,000//and finally $100.000. The Dragons will invest only if the internal rate of return exceeds their cost of capital lof 20%. Should they invest?
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Your latest project involves the development of a death ray. Initial estimates predict that the project has a 50% chance of failure, with a potential loss of $1,000,000. However, you could hire an expert for $450,000. This is likely to reduce the chance of failure to 20% and the potential loss to $300,000. Questions: a) What is the dollar value of the net benefit of hiring the expert? Should you hire the expert? (Show all calculations for credit) b) As the skeptical accountant, do you have any concerns with this analysis? Be specific in order to receive credit
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2. During the discussion of the potential IPO and East Coast Yachts’ future, Dan states that hefeels the company should raise $60 million. However, Larissa points out that if the company needsmore cash soon, a secondary offering close to the IPO would be potentially problematic. Instead,she suggests that the company should raise $90 million in the IPO. How can we calculate theoptimal size of the IPO? What are the advantages and disadvantages of increasing the size of theIPO to $90 million?
Suppose there are two potential projects for investment. Project 1 has a certain payoff of $50 in one year, while project 2 has a 50% chance of generating $100 in one year, and another 50% chance of generating $0 in one year. Suppose the company has an outstanding debt = $50. (1)Which project will shareholders prefer? Justify your answer. (2)Which project will debt holders prefer? Justify your answer. (3)Which project will the financial manager prefer? Justify your answer.
You are an entrepreneur starting a biotechnology firm. If your research is successful, the technology can be sold for $30 million. If your research is unsuccessful, it will be worth nothing. To fund your research, you need to raise $2 million. Investors are willing to provide you with $2 million in initial capital in exchange for 50% of the unlevered equity in the firm. What is the total value of the firm without leverage?
An auto plant that costs $100 million to build can produce a line of flexfuel cars that will produce cash flows with a present value of $140 million if the line is successful but only $50 million if it is unsuccessful. You believe that the probability of success is only about 50%. You will learn whether the line is successful immediately after building the plant. a-1.Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answer in millions.) a-2.Would you build the plant? Suppose that the plant can be sold for $95 million to another automaker if the auto line is not successful. b-1. Calculate the expected NPV. (Do not round intermediate calculations. A negative amount should be indicated by a minus sign. Enter your answer in millions rounded to 1 decimal place.) b-2. Would you build the plant?