Use the Information for the Question(s)below

question 56

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%.
-Without issuing 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:

Rooting Reflex

An automatic response seen in newborns, who turn their head toward anything that strokes their cheek or mouth, aiding in the act of breastfeeding.

Walking Reflex

An innate reflex in infants that causes them to make stepping motions if they are held upright with their feet touching a solid surface.

Distinguish Colors

The ability to perceive and differentiate various colors.

Teratogens

Agents or factors that can cause congenital anomalies or defects in developing embryos or fetuses.