Q2. Project Appraisal An online streaming service provider, called Safe & Sound Productions, is considering a new show w

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Q2 Project Appraisal An Online Streaming Service Provider Called Safe Sound Productions Is Considering A New Show W 1 (158.55 KiB) Viewed 55 times

Q2. Project Appraisal An online streaming service provider, called Safe & Sound Productions, is considering a new show with 11 episodes per series which would be offered to a movie and TV show company. The show would be an annual festive occasion streaming service and is predicted to run for 4years. 1. The show is expected to be offered to the channel for £8,000,000 per season initially. However, if the show is successful, the programme maker expects to increase its charge by 15% for each season. 2. In order to create the show, Safe & Sound production would have to enter into a licensing deal with another production, company (Target) that has a patent on a next to identical show. This is expected to cost £10,000,000 3. The show would rent premises for the competition which are anticipated to cost £5,000 per month for the three months of filming each year. . 4. The company would use many of its current staff but doing so, it would forgo the production and sale of long-running festive occasion which currently makes a contribution of £50,000 per year. 5. Safe & Sound would employ additional staff, including a film crew, which is estimated to amount to £3,250,000 in the first year of filming and increase by 2% in line with the company's annual wage increases. 6. The four presenters of the show each earn £120,000 in season 1. However, if the production is successful, they are expected to re-negotiate their contracts every three years (starting in year 4) for a 50% increase 7. The cost of capital is 15% per annum. 8. Assume all cash-flows occur on the last day of each year except for the immediate licensing deal Required: a. Calculate the estimated Net Present Value (NPV) of the show (20marks) b. What is Net Present Value and evaluate its merits as a project appraisal technique. Discount Factor Table 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% Rate Year 0 1 2 3 4 5 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 6 7 8 9 10 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 11 12 13 14 15 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 16 17 18 19 20 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026 21 22 23 24 25 0.135 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022 0.123 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018 0.112 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015 0.102 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013 0.092 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010