I am the new Chief financial officer of a US film studio and i have to make recommendations on four projects in order to produce a profitable movie. Firstly, i am going to calculate Net Present Value for each scenario because i have to make a selection. Indeed, i must determine the negative and the positive NPV. Then, i will explain why i have decided to include or not certain costs in the analysis. For example, rent, electricity or phone bills of the employees. After that, i will justify why you can't underestimate the financial aspect of a larger corporation and their different opportunities to save money. Then, we will also see threats of the US movie business and the mean to anticipate these risks. Finally, i will explain the power of shareholders and the relation between the case and the price earnings ratio.
[...] Question The studio that you work for is only one part of a larger corporation. The larger corporation also has theme parks, music division, and a publishing unit. Describe now this might affect your financial of the projects. As I have said previously, the studio is just a little part of a big corporation. In this case, the corporation is composed by theme parks, music division and a publishing unit. I think it is possible to use this strength to save money because the corporate departments will fix a better price than the competitors would do. [...]
[...] Marketing cost 000). Initial cash outflow = $ + $ + $ + $ + $ + $ = $ Non included costs: I don't include previous costs of production because I suppose they were already included in the previous income statement. These sunk costs are: Wage of Johnny Depp at the beginning of the movie production: $ Cost of the movie production: $ After having calculated both initial cash outflows, we will calculate the Net Present Value of each scenario. [...]
[...] Question Revenues from the US movie business have become less predictable in recent years. Rising anti-Americanism and declining cinema and DVD sales, combined with rising production budgets and actors' salaries, have made industry profits less than ever. If you believe that the industry is riskier, where should that be reflected mathematically in your calculations? Explain why. I think this business is very risky because of the evolution of new technologies. Indeed, currently it is possible to download and watch American movies before their French cinema release. [...]
[...] If there is an increase on the project risk, the capital risk will increase too. That is why we have to change the cost of capital and increase its rate. Consequently, the NPV will decrease. It is also possible to create security on the DVD in order to improve the difficulty to burn it but cost is expensive and result is unsatisfactory. Question The head of the studio in our case reports to the CEO of the corporation. The bosses of the CEO are the shareholders. [...]
[...] Gus Van Sant vs. Johnny Depp I am the new Chief financial officer of a US film studio and I have to make recommendations on four projects in order to produce the most profitable movie. Firstly, I am going to calculate Net Present Value for each scenario because I have to make a first selection. Indeed, I must determine the negative and the positive NPV. Then, I will explain why I have decided to include or not certain costs in the analysis. [...]
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