Question: Should I take out this loan...? Aspiring filmmaker needs financial advice.?

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Answer #1:

The correct answer would be "Yes, IF the net present value of your future cash flows discounted at the opportunity cost of capital is greater than zero", but I'll try to give you a more tangible answer below.

Short answer: Yes, IF your expected return is greater than the total cost of the loan.

Risk perspective: FedEx was at some point close to bankruptcy, the CEO flew to Vegas and gambled his last money. He got lucky and was able to pay the salaries of his employees so to get FedEx through a rut. Lesson: If you've got very little to lose and the upside is large, then it is worth taking excessive risks.

Long answer: While you have a good education, there is no guarantee that your film can't be a flop. Most of the greatest film makers have had a flop, so why shouldn't you. It may even be quite likely considering the early stage of your career.

That said, if you want to get a rough idea, do a weighted average of your expected returns... be honest with yourself and build something such as the following:

Scenario 1 (Best case): 20% likelihood that I will make $5k off the project
Scenario 2 (Medium case): 50% likelihood that I will make $3k off the project
Scenario 3 (Worst case): 30% likelihood that I will make $0.5k off the project

Then get the weighted average return: (20%*$5k)+(50%*$3k)+(30%*$0.5k) = $2.65k

If you then take the weighted average return over your entire loan (principal + interest) you will get the expected return for the project. Let's say your loan cost is $2.625k ($2.5k loan + 5% interest over a 1 year term), then your rough return would be $2.65k/$2.625k = 1.009 (or 0.9% return). Any number greater than 1 means you should go-ahead. Any number smaller means you should be careful (i.e. you're expected to lose money, at least in the short-term).

Generally speaking, it would be better to work on projects where you are not risking your personal money. If you are set on being entrepreneurial, then do something like the above to get a perspective of your position.

Good luck!

Answer #2:

NO: do it like when i put out Chernobyl
money from recycling [no lone].





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