David Lynch needs $20,000,000 to start shooting his new feature film, Ronnie Rocket. He can invest $5,000,000 from his own pocket. To get the remaining $15,000,000, his manager, Ari Gold, is trying to find a co-producer or an investor who is willing to lend but no one volunteers as his films are perceived to be too risky compared to usual Hollywood projects. Hence, Mr. Gold advises Mr. Lynch to deposit his $5,000,000 into a savings account with an interest rate of 6% per year (annually compounding) until he accumulates the necessary $20,000,000. How long should Mr. Lynch wait until he can start shooting Ronnie Rocket? Solve this problem using Time Value of Money equations and be sure to show all of your vork.

David Lynch needs $20,000,000 to start shooting his new feature film, Ronnie Rocket. He can invest $5,000,000 from his own pocket. To get the remaining $15,000,000, his manager, Ari Gold, is trying to find a co-producer or an investor who is willing to lend but no one volunteers as his films are perceived to be too risky compared to usual Hollywood projects. Hence, Mr. Gold advises Mr. Lynch to deposit his $5,000,000 into a savings account with an interest rate of 6% per year (annually compounding) until he accumulates the necessary $20,000,000. How long should Mr. Lynch wait until he can start shooting Ronnie Rocket? Solve this problem using Time Value of Money equations and be sure to show all of your vork.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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john has a great idea to setuo a pie and pastie factory. He needs $200,000 to buy the equipment and to lease suitable prmises for a year. He is not sure whether he should setup a company and issue 200,000 shares to his friends, or else try to borrow $200,000 from a bank to raise those funds. Explain to him the advantages and disadvantages of both alternatives.
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Blockbusters Incorporated, a leading producer of movies, is currently negotiating with Liam Goodlooking, the biggest box-office attraction in the movie industry, to star in an adventure film. For a starring role, Liam normally receives a salary of $20,000,000 plus 5% of the receipts to the producer. (The producer normally receives 40% of the total paid admissions wherever the movie is shown.) However, Liam is quite optimistic about the prospects of the film and has expressed some interests in a special contract that would give him only 25% of his normal salary but increase his portion of the receipts to the producer to 20%. Other than Goodlooking’s pay, costs of producing the picture are expected to be $45,000,000. What are the break-even receipts to the producer under each of the compensation schemes?
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