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:

Myomalacia

The softening of muscle tissue due to disease or injury.

-malacia

A suffix used in medical terminology to denote a pathological softening of tissues, often used in the context of diseases affecting specific organs.

High-frequency Current

Electrical current characterized by a high rate of oscillation, used in various applications including medical treatments and radio transmissions.

Diathermy

A medical and surgical technique involving the use of high-frequency electric currents to generate heat in body tissues, used to stimulate blood circulation, relieve pain, and destroy unhealthy tissue.