Use the Information for the Question(s)below

question 41

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%.
-Assuming that the film maker issues the new security,the 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

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Definitions:

Sensation

The response of a sensory organ (eyes, ears, skin, tongue, nose) when it detects a stimulus.

Perception

The mental processing of sensory information when the brain interprets a sensation.

Cognition

The mental action or process of acquiring knowledge and understanding through thought, experience, and the senses, encompassing processes such as memory, judgment, and problem-solving.

Prefrontal Cortex

A region of the frontal lobes of the brain implicated in a variety of complex behaviors, including planning, decision-making, and moderating social behavior.