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Hi
Please explain why the t=2. I used 4
Also is the Pa equivalent to the PV of cash flows or NPV?
Lastly in the NPV calculation why is the 35m in year 2 and not year 0
Thanks
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hie
and on the same question explain why $7m was put on year 1 and 2.Thanks
The option is to delay 2 years (delay until 2 months after the film is released. the film is released in 22 months, so a total of 24 months, or 2 years).
Pa is the present value of the positive cash flows that we expect.
The paragraph below the cash flows says that we will spend 7M at the start of each of the nest 2 years, so 7M at time 0 (the start of the first year) and 7M at time 1 (the start of the second year).
It also says that following this we will spend 35M at the start of the sales period (which as I explained in my first sentence, will be in 2 years time).
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