A Wiley publisher offers you the rights to produce a romantic movie based on a novel about to be published – cost is 5 million pounds.

Previous experience indicates the novel has a 50/50 chance of success or failure.

If successful, the movie will earn a PV of 75 million pounds. If a flop, the movie will make a loss of 75 million pounds (development & promotion). What is the traditional NPV of this project? What would be the NPV of this project with the use of real options?

Yankee Construction agreed to lease payments of $762.79 on the construction equipment to be made at the end of each month for six years. Financing is at 15% compounded monthly.

a) What is the value of the original lease contract?

b) If, due to delays, the first eight payments were deferred, how much money would be needed after nine months to bring the lease payments up to date?

c) How much money would be required to pay off the lease after nine months?

d) If the lease were paid off after nine months, what would the total interest be?

e) How much of the total interest would be due to deferring the first eight payments?