Reference no: EM133059366

Question - The CEO of Garneau Cinemas is considering making a movie and must decide between a comedy and a thriller-it doesn't have the production space to make both. The comedy is expected to cost $25 million upfront (at t = 0). After that, it is expected to make $18 million in the first year (at t = 1) and $4 million in each of the following two years (at t = 2 and t = 3). In the fourth year (at t = 5), it is expected that the movie can be sold into syndication for $2 million with no further cash flows back to Garneau Cinemas. The thriller is expected to cost $45 million upfront (at t = 0). After that, it is expected to make $25 million in the first year (at t = 1) and $3 million in each of the following four years (at t = 2, 3, 4, and 5). In the sixth year (at t = 6), it is expected that the movie can be sold into syndication for $30 million with no further cash flows back to Garneau Cinemas. The cost of capital is 10%, and Garneau usually requires projects to have a payback within four years. Determine each project's payback and NPV, and advise the CEO what she should do.