You invest in a movie theater with start up costs of 2 million dollars today, an

Question

You invest in a movie theater with start up costs of 2 million dollars today, and production costs of 150 million dollars the following year. Two years from today you see income of 200 million dollars. The next 5 years, CD and merch income equals 5% of movie theater income. Cash flows are below:

Required return of 20%

Year      Cash Flow

0             -2 million

1             -150 million

2             200 million

3             10 million

4              10 million

5              10 million

6              10 million

7               10 million

What is the break even income?

Explanation / Answer

break even income=

Pv of income

year 1= 150*0.833=124.94

year2= 200*0.694=138.8

year3 to 7= 10*2.07=20.7

so, break even income=-2-124.94+138.8+20.7=32.56

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