Use the Information for the Question(s)below

question 88

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%.
-Refer to the information above.Assuming that the film maker issues the new security,the net present value (NPV) for this project is closest to what amount? Should the film maker make the investment?

• A)$1.7 million; Yes
• B)$1.7 million; No
• C)$2.7 million; Yes
• D)$2.7 million; No
• E)$5.0 million; Yes

Analyze the relevance of cash flow from assets and its components in assessing the financial health of a company.

Understand the concept of capital structure and its impact on a firm's financing decisions.

Recognize the primary goal of financial management in terms of shareholder wealth maximization.

Differentiate between capital structure and working capital decisions.

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Definitions:

Instincts

Innate, biologically determined behavioral responses characteristic of a species, often triggered by specific external stimuli.

Sense of Attachment

The emotional bond that forms between individuals, often starting from infancy, that affects their relationships throughout life.

Life Instincts

In psychoanalytic theory, the innate drives that contribute to survival, growth, and creativity, as opposed to death instincts which relate to aggression and self-destructive behaviors.

Organismic Valuing Processes

Internal evaluative processes through which individuals judge experiences in terms of their value for fostering or hindering their own growth and development.