Use the Information for the Question(s) Below

question 62

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

---

Definitions:

Capital Account

An account on a nation's balance of payments that records transactions involving the purchase and sale of assets, or in business accounting, an account representing owner's equity.

Partnership Capital

The total amount of equity contributed by all partners in a partnership business.

Personal Assets

Assets owned by an individual, including tangible and intangible items of value such as real estate, investments, and personal property.

Unlimited Life

A characteristic of corporate entities indicating they can continue to exist indefinitely, beyond the lives of their owners or members, unless dissolved.