-You must decide whether to produce “Straight Out of New Canaan”, a biographical film about four thugs who acquire fortune and fame as “gansta” rappers. The budget, or initial investment, to produce the film and the cash flows it is forecast to generate are shown in the table below. Beyond year 5, the film is expected to earn a cash flow of $200,000 perpetually. What is the “Internal Rate of Return” or return that would be earned if the forecast is accurate? This can only be answered by “trial and error”. The process can be expedited by creating a program in SAS or SPSS or by using Excel to enter cash flows and test various rates of return. Round the answer to one one-hundredth of a percent – i.e. - 1 basis point. Year 0 1 2 3 4 5 6 Cash Flows ($16.80) $8.50 $6.30 $4.20 $2.20 $1.60 $0.20
7 -You must decide whether to produce “Straight Out of New Canaan”, a biographical film about four thugs who acquire fortune and fame as “gansta” rappers. The budget, or initial investment, to produce the film and the cash flows it is
|
Year |
0 |
1 |
2 |
3 |
4 |
5 |
6 |
|
Cash Flows |
($16.80) |
$8.50 |
$6.30 |
$4.20 |
$2.20 |
$1.60 |
$0.20 |
Rate of Return:
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