Use the Information for the Question(s)below

question 48

Multiple Choice

Use the information for the question(s) below.
An independent film maker is considering producing a new movie.The initial cost for making this movie will be $20 million today.Once the movie is completed,in one year,the movie will be sold to a major studio for $25 million.Rather than paying for the $20 million investment entirely using its own cash,the film maker is considering raising additional funds by issuing a security that will pay investors $11 million in one year.Suppose the risk-free rate of interest is 10%.
-What is the NPV of this project if the film maker invests his own money and does not issue the new security? What is the NPV if the film maker issues the new security?

• A)$1.7 million;$1.7 million
• B)$1.7 million;$2.7 million
• C)$2.7 million;$1.7 million
• D)$2.7 million;$2.7 million

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Definitions:

Transformation

The process of changing the structure or properties of a molecule, often used in context with chemical transformations.

Reagents

Materials or chemicals introduced into a system to initiate a chemical reaction or to check for the presence of a reaction.

Transformation

A thorough or dramatic change in form or appearance; in biology, it refers to the genetic alteration of a cell by the introduction of DNA from an external source.

Reagents

Substances or mixtures used in chemical reactions to detect, measure, examine, or produce other substances.